April 13, 2018
German support for eurozone reform next to zero...
The eurozone reforms are in real political trouble in Germany. The SPD is losing interest, and the CDU/CSU is becoming openly hostile. We think that the new co-chairwoman of the German Green Party, Annalena Baerbock, put her finger on the SPD's rapidly diminishing interesting in eurozone reforms. She is quoted by Handelsblatt as saying:
"Since Martin Schulz is gone, one has the sense that the eurozone chapter of the coalition agreement has been closed, unread."
As the paper writes in a separate report, Olaf Scholz has hardened his line on the European deposit insurance Scheme (Edis), while FAZ reports that Angela Merkel is losing the backing of her own party. We are basically back to the position where we have been throughout the eurozone crisis. A chancellor who is willing in principle to engage but constrained by the conservatives in her party, and a coalition partner who could not care less.
Handelsblatt notes that Scholz has reverted to Wolfgang Schauble's line that there is no point in discussing the European deposit insurance scheme until the banking risks are eliminated. As we noted before, those who make this statement are never explicit about how they define the risk, or which thresholds of risk metrics they propose. The paper writes that Scholz does not see Edis as a priority project for the eurozone right now. The paper also quotes that deputy leader of the CDU group in the Bundestag, Ralph Brinkhaus, as saying:
"a European deposit insurance is very, very, very far away."
FAZ has further details about the CDU's emerging total opposition on Emmanuel Macron's reforms. They reject flat-out all the three areas of reform: no single EU budget, no reform of the ESM, and no deposit insurance. And the even more far-reaching proposals by the European Commission were dismissed as totally unacceptable. The paper also quotes Brinkhaus as reiterating a point we have been making before: because of the new majority situation in the Bundestag, Merkel's room for manoeuvre is much smaller now than it was during the previous coalition. He recalled that 60 CDU/CSU MPs refused to back the Greek package. The current coalition would not be able to survive a rebellion of similar scale.
In this context we noted that Germany also seems to maintain its tough stance in the technical talks over debt relief for Greece, insisting on strong terms and conditions in return for debt relief according to Kathimerini. The IMF and France reject this conditionality, arguing that it would amount to another programme. Euclid Tsakalotos is in Berlin today, to find out Scholz' intentions.
The CDU/CSU group in the Bundestag is also extremely sceptical of any attempts to weaken the national control of the ESM. The current ESM treaty already allows member states to increase lending capacity if needed. And he also sees no need for an EU budget to feather asymmetric economic shocks. He notes that there is a loss of trust about anything new, out of fear that this might lead to a transfer union at the end of the process.
The only issue on which the CDU/CSU group is ready to compromise is on a fiscal backstop forf the single resolution fund. But, again, this comes with the usual Godot-style preamble that the risks in the banking system have to be reduced.
Finally, we noted that Jens Weidmann supports the same line almost verbatim. He said the issue for the Germans on deposit insurance is a fundamental refusal to accept any shared responsibility for legacy risks.
Here is a note to our French readers. It is a total illusion to think that it is possible to persuade Germany of the benefits of eurozone reforms. These issues have been discussed - and rejected - in Germany since the 1980s. Nothing has changed. The German system will only ever react to a crisis, or an outright threat.