We use cookies to help improve and maintain our site. More information.
close

June 05, 2018

Merkel sets the terms. What response from Macron?

Much of the French and German press was preoccupied with analysing what Angela Merkel meant when she made her proposals on the eurozone. The consensus is similar to ours - there is not much change from what we knew already. What we do sense, however, is that some of the commentators underestimate the difficulty to getting any of this agreed at EU level. Do we really think that the new Italian government will accept a rule change to allow the ESM/EMF to force a national debt restructuring?

Werner Mussler has done a good job of dissecting the entire proposal in his analysis for FAZ. For starters, he noted that Merkel did not mention deposit insurance, a eurozone budget or a eurozone finance minister. Instead she is proposing three new sources of funding. On the first one - the five-year credit line - he notes is an important distinction. At present, a programme can only be triggered if the eurozone as a whole is in trouble. Merkel's short-term programme would not be subject to the same constraint. The idea is to allow the ESM to help countries that suffered either an asymmetric shock or some form of domestic economic or financial crisis. 

The second pot of money are the fund for innovation, which Mussler sees administered by the ESM - not by the European Commission. Merkel mentioned a total volume in the low double-digit billions, but as so often when German politicians and newspapers report on numbers they don't always tell us whether these are total stocks or annual disbursements. The third pot is a separate fund to incentivise countries to conduct structural reforms. 

The ESM will not only change its name and administer another credit line but, as Mussler asserts, Merkel wants the new EMF to act as the quasi-intergovernmental finance ministry of the eurozone, with much stronger economic expertise than at present, and with co-responsibility for supervision of fiscal policies in all member states, not just crisis countries. It is not hard to see how this proposal could end up generating an inter-institutional war between Brussels and Luxembourg. 

What is the French response to Merkel? The Élysée palace may have welcomed Merkel's 'encouraging' step towards the French position, but the echo in the press is muted, also due to a lack of enthusiasm for the eurozone in general. Everyone agrees that Merkel's response is far below Macron ambitious reform proposals for the eurozone. And that the conditions Germany imposes are likely to displease some countries in the eurozone, France included. 

Will Macron be satisfied with such a slimmed-down agenda? Macron may well wish that he hadn't bothered, as Politico put it. It may have showed how politically naïve Macron was. After all, Merkel always prefered prudence. But prudence is no longer up to the challenge, warns Le Monde's editorial. Has Macron any other choice than to agree to Merkel's terms, and risk being out of sync with both the historic challenges and his personal ambitions? 

A more positive reading is the assessment of the paper's Berlin correspondent, but the article focuses on the areas where there has been more convergence with the French position: defence, immigration and European institutions. Merkel's proposal of a European intervention force is probably her most ambitious goal, also given Germany's poor spending targets, but it is considered in Paris as an important  political signal. On immigration, Merkel conceded that the quota system for refugees failed and advocates a more flexible system with shared responsibilities, a European agency for migration and the harmonisation of asylum rights.

Merkel is ready to cut down the Commission with a Commissioner rota for the large countries, and she is proposing that the leaders of the political parties in the European Parliament should come from transnational lists. 

Nikolas Busse in FAZ interprets the relatively positive reaction in Paris as a white flag of realism - one can’t really expect from Berlin more than this. We agree with the overall conclusion of Nicolas Veron, who noted that France and Germany were 

"still barely at the starting-point phase. It may well be that the 2018 window of opportunity for eurozone reform has already closed."

There is no way that the European Council will be able to agree a final package at the June summit. The second part of the year will be dominated by Brexit and the upcoming European elections. Our expectation is a small agreement sometime in the autumn - smaller even than what Merkel proposed. At that point, the majorities in the European Parliament will have changed in such a way that it will become increasingly difficult to agree any reforms. 

Show Comments Write a Comment

June 05, 2018

Vollgeld: an accident not waiting to happen

Next Sunday, the Swiss will vote on a number of referendums including one on whether to abolish fractional reserve banking. This typically goes by the name sovereign money in English, but the German term Vollgeld translates as "full money", something with entirely different connotations. Periodically there are analyses in the international press about the potential implications of a yes vote in that referendum, such as one in the Financial Times. The consequences would be a major shock to the Swiss banking system in the short term, though this would depend on the transitional arrangements. In the medium term there would be a credit restriction in the Swiss economy.

We believe this referendum will boil down to whether people listen to experts or not. Mainstream economists and even heterodox economists of the Keynesian persuasion, are generally strongly against sovereign money; as are most bankers, central bankers, and government officials. The Swiss central bank has made it known it definitely doesn't want the responsibility of micromanaging the flow of credit. But the Financial Times has found a banker who, on discovering that banks create money through lending as opposed to lending savers' money, was so taken aback that he's now supporting the Vollgeld initiative. We're reminded of the classic quip by John Kenneth Galbraith: "the process by which banks create money is so simple that the mind is repelled"; and Henry Ford: "if people understood the banking system, there would be a revolution tomorrow".

But it doesn't look like there will be a revolution in Switzerland on Sunday. There have been very few published polls, all of them showing that No leads Yes on the Vollgeld initiative by a comfortable margin. The one major poll is the one by the Swiss broadcasting company SRF. Its recently published second round shows a shift of a quarter of the undecideds towards being strongly against the measure. Two weeks ago, those against or strongly against the measure were 54% of those polled, up from 49% the previous month. The undecideds are still at 12%, leaving only 34% in favour.

Show Comments Write a Comment

June 05, 2018

Germany shocked, shocked, by Mr Ambassador

It was a German military historian, Carl von Clausewitz, who once defined war as the continuation of diplomacy by other means. This statement also works in reverse order. The Germans are currently finding this out as they are confronted by the most unusual US ambassador who ever set foot in Berlin. Richard Grenell sees himself as the diplomatic enforcer of Donald Trump's war on liberal democracy and global free trade. After Trump announced the decision to pull the US out of the Iran nuclear deal, Grenell warned German companies - in a tweet naturally - that they must immediately stop doing business with Iran. More recently, he gave an interview to Breitbart news in which he called Sebastian Kurz, the Austrian chancellor, a rock star, and predicted more conservative victories in Europe. And, for good measure, he said that we would be supporting conservatives all over Europe, which is not a job ambassadors usually do.

The Germans previously complained that Trump had left the position of US ambassador to Berlin vacant for a whole year. Now they have Grenell. The only German politician he seems to have taken to is Jens Spahn, the standard-bearer of the xenophobic right-wing in the CDU, and now health minister.

Show Comments Write a Comment

This is the public section of the Eurointelligence Professional Briefing, which focuses on the geopolitical aspects of our news coverage. It appears daily at 2pm CET. The full briefing, which appears at 9am CET, is only available to subscribers. Please click here for a free trial, and here for the Eurointelligence home page.

 

Recent News

  • July 10, 2017
  • EU in self-destruction mode
  • The EU's fault lines
  • Fake News and Fake views
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • June 20, 2017
  • How to soften Brexit?
  • The deep roots of Brexit: Thatcher and the Germans
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • May 31, 2017
  • Getting real in the debate on the euro's future
  • Russia's growing influence in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 18, 2019
  • Retaliation threats over drilling
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • May 10, 2017
  • PSOE primary campaign in full swing
  • Czech government crisis escalates
  • Backroom dealing on electoral reform in Italy
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 09, 2019
  • What can go wrong now?
  • April 13, 2018
  • German support for eurozone reform next to zero...
  • ... and no support for France on Syria either
  • A French sermon
  • Why the euro endures
  • April 19, 2017
  • Shadows of money
  • Breppe Grillo vs Eurointelligence
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • January 29, 2019
  • What comes after plan B fails? Plan C, of course. C for cliff-edge
  • Gilets jaunes, how to structure a movement in free flow?
  • European Court of Auditors criticises Juncker’s investment fund
  • February 26, 2018
  • Angela Merkel's cabinet
  • March 27, 2017
  • Governing formation troubles - Northern Ireland edition
  • Did Trump present Merkel with a bill for Nato?
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • November 13, 2018
  • Peak Salvini?
  • Protest uberisation
  • January 05, 2018
  • Catalonia's government by Skype
  • The case for EEA membership
  • February 28, 2017
  • Is Hamon losing the right wing of his party?
  • Something we just don’t understand
  • Solve the problem
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • May 31, 2019
  • Salvini’s frightening strength
  • The significance of Corbyn’s latest flipflop on the referendum
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • November 09, 2017
  • From street protests to road closures
  • What Russia wants
  • January 31, 2017
  • Project fear against Italexit
  • On how not to frustrate Brexit
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • February 07, 2019
  • Forget Tusk - the real action is elsewhere
  • On David Malpass and the Trump legacy
  • May 28, 2018
  • A no-confidence motion that could backfire
  • The political repercussions of a historic referendum in Ireland
  • Why the lack of an international role for the euro matters
  • September 15, 2017
  • Juncker dragged into the Catalan fray
  • What to say in Florence
  • How to fill the gap left by the British MEPs
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 26, 2019
  • How Brexit has given rise to different perceptions of reality
  • The EP, not Madrid, will boost Spanish clout
  • How realistic is a Gaullist Europe?
  • September 17, 2018
  • About the new partnership between Russia and China
  • EU ponders Irish backstop protocol to help May
  • February 07, 2018
  • A short note on bitcoin
  • July 04, 2017
  • On the CDU’s programme
  • Macron defines his presidential style
  • Why do we criticise modern macro?
  • November 28, 2016
  • And now what Monsieur Fillion?
  • The inescapable logic of an interim agreement
  • On Germany's foreign policy post-Trump
  • How to lose against the populists
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • April 01, 2019
  • Meaningful IV
  • Caputová elected: a turning point for central Europe?
  • October 02, 2018
  • Whatever it takes - diesel version
  • Is Macron's European discourse too simplistic?
  • April 06, 2018
  • Schleswig Holstein collapses Spain's strategy against Catalan separatism
  • On the implausibility of conspiracy theories in the Skripal case
  • October 09, 2017
  • UK is starting to prepare for a no-deal Brexit
  • Why Germany will resist meaningful eurozone reform
  • April 12, 2017
  • Macro in a state of denial
  • Where Schulz is vulnerable
  • Schäuble’s three party tricks
  • October 17, 2016
  • Ceta is dead for now
  • L’après-Hollande, c'est Hollande
  • SPD against Russia sanctions
  • Nissan to join customs union and other fanciful tales
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • June 18, 2019
  • Retaliation threats over drilling
  • February 04, 2019
  • Watch out for the resurgence in Tory unity
  • The gilets-jaunes' effect on the European elections
  • What did he possibly mean by that?
  • September 27, 2018
  • Two ways out of the Brexit impasse
  • May 22, 2018
  • A €60bn ESM credit line - is this what they call a backstop?
  • Will Nato survive Trump?
  • Northern Ireland's Brexit disillusion
  • Would Corbyn become prime minister if he accepted the single market?
  • January 15, 2018
  • Is the section on Europe for real?
  • Can Drahos upset Zeman?
  • September 11, 2017
  • Turkey issues travel warning for visitors to Germany
  • How nasty is the AfD?
  • May 08, 2017
  • A message of hope
  • Barnier's not so easily agreed Brexit principles
  • The rebirth of the paranoid conspiracy theory
  • January 05, 2017
  • French Socialist primaries - old wine in new bottles
  • Le Pen's hard ecu
  • Will Tusk get a second mandate?
  • Themes of 2017
  • August 24, 2016
  • Towards a hard Brexit
  • Is there a pact of Ventotene?
  • La rentrée
  • April 25, 2016
  • The death of the Grand Coalition
  • Insurrection against TTIP
  • Juppé to benefit from Macron hype
  • On optimal currency areas
  • Why the Artic region could be the next geopolitical troublespot
  • From a currency to a people
  • July 29, 2019
  • No-deal Brexit is no longer just a scenario
  • No German warships to the Strait of Hormuz
  • July 01, 2019
  • The questions we will be asking tomorrow
  • What category of diplomatic accidents is Sea Watch 3?
  • June 03, 2019
  • Reinventing the French right without Wauquiez
  • Tory leadership election is between feasible and unfeasible Brexit options
  • May 07, 2019
  • … while Macron’s European troubles have already begun, and might get even worse
  • Don't discount a Brexit deal
  • Is Tsipras too complacent?
  • Costa - the fiscally responsible Socialist
  • April 11, 2019
  • Thoughts on how the European elections in the UK could affect UK and European politics
  • Far right to enter Estonia's government
  • March 18, 2019
  • May's deal still on the table. Don't rule it out.
  • EPP decision on Fidesz still open
  • On the defeat of liberalism
  • February 21, 2019
  • Sound and fury, but Brexit reality unchanged
  • Supertanker Deutschland moves to join internet age
  • January 29, 2019
  • What comes after plan B fails? Plan C, of course. C for cliff-edge
  • Gilets jaunes, how to structure a movement in free flow?
  • European Court of Auditors criticises Juncker’s investment fund
  • January 09, 2019
  • Trump downgrades EU's diplomatic status, threatens trade war
  • December 21, 2018
  • Not just Brexit makes 2019 a year of EU uncertainty
  • Sentiment is fickle, especially about sentiment
  • Father Christmas - French edition
  • King suspends Michel's resignation
  • EP has objections to the withdrawal treaty
  • Let's break the law
  • December 03, 2018
  • French protests coming to a head this week
  • The Galileo fiasco, an ill omen for the future UK-EU relationship
  • November 15, 2018
  • Ratification is more probable than it appears
  • Romania's problematic presidency
  • October 29, 2018
  • Why the EEA is no longer a Brexit option
  • Behold the rising superpower: post-catholic Ireland’s European miracle
  • October 12, 2018
  • A deal so close, and yet so far
  • AfD leaves Germans speachless and helpless
  • September 27, 2018
  • Two ways out of the Brexit impasse
  • September 13, 2018
  • Bravo Mr Juncker for raising the issue of the euro’s international role. But what now?
  • Are the eurosceptics imploding?
  • August 31, 2018
  • How Macron uses the new European divisions at home
  • Macron's eurozone budget is probably a no-go
  • EU edging closer to a Brexit deal
  • August 20, 2018
  • ... and a subtle shift in EU policies towards both Russia and Turkey
  • Nothing to celebrate about the end of the bailout programme
  • Support for Brexit holding up
  • July 30, 2018
  • Brexit midsummer madness
  • July 18, 2018
  • Don’t hold your breath about the EU-Japan trade deal
  • July 09, 2018
  • German panic about Target2
  • AfD level with SPD
  • How the EU could fail
  • July 02, 2018
  • Is Trump out to destroy both Nato and the EU?
  • Salvini’s empire
  • Remembrance as a way forward?
  • June 25, 2018
  • Trump's car tariff to come early
  • On the lack of a sharp focus in the eurozone debate
  • June 18, 2018
  • Some thoughts on the future of Europe
  • The end of Spanish income moderation?
  • June 14, 2018
  • A Labour rebellion, really?
  • June 11, 2018
  • The end of the G7 - good riddance
  • Macron needs allies for his European agenda
  • Who is going to be the next director-general of the Italian treasury?
  • June 08, 2018
  • German car lobby in full panic mode - wants EU to cut car tariffs unilaterally
  • Turkey suspends migrant deal with Greece
  • Is Macron losing the left?
  • June 06, 2018
  • Putin's new European strategy