The World from Berlin: 'Even a 1-Trillion Euro Firewall Wouldn't Be Enough'

European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small.

Danish Finance Minister Margrethe Vestager gets a grilling by reporters at an EU finance ministers' meeting in Copenhagen on Friday. Zoom
AP

Danish Finance Minister Margrethe Vestager gets a grilling by reporters at an EU finance ministers' meeting in Copenhagen on Friday.

German Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, have been accused of crossing many of the "red lines" that they have set for themselves over the course of the euro crisis, making U-turn after U-turn as the crisis escalated. They officially stepped over the latest red line on Friday, when European Union finance ministers meeting in Copenhagen agreed to boost the scope of the euro zone's firewall to over €800 billion ($1 trillion). Berlin had long rejected such an expansion out of hand.

Austrian Finance Minister Maria Fekter announced on Friday that the permanent euro rescue fund, the European Stability Mechanism (ESM), would be expanded, by considering the around €200 billion in current bailouts as being separate from the €500 billion earmarked for the ESM -- originally, the €500 billion figure was to have included the €200 billion in existing aid. The ESM, which is due to come into operation in mid-2012, will also be boosted by including around €100 billion in bilateral aid that was given to Greece in 2010, as well as aid from other EU funds, bringing the firewall's total capacity to over €800 billion.

Fekter expressed her confidence that Friday's move would be enough to calm the financial markets. "The markets are already signaling relative calm," she said. "That shows that the markets can work with what we have set up here."

The Nuclear Option

On Thursday evening, in the run-up to Friday's summit, German Finance Minister Wolfgang Schäuble had said he was prepared to combine the existing bailouts with the new permanent mechanism. He said that the €800 billion capacity was "convincing" and "sufficient."

But not everyone shares his view that the sum is enough. On Thursday, French Finance Minister François Baroin called for the permanent euro bailout fund to be increased to €1 trillion, to shore up market confidence and prevent contagion in the euro crisis. "The firewall, it's a little like the nuclear option in military planning, it's there for dissuasion, not to be used," Baroin said in a radio interview. He was echoing calls made by the Organization for Economic Cooperation and Development (OECD) earlier in the week to boost the firewall to €1 trillion.

At the beginning of the week, SPIEGEL reported that Merkel and Schäuble had dropped their long-held resistance to allowing both the temporary European Financial Stability Facility (EFSF) and the ESM, which was supposed to replace it, to operate in parallel for a period, thereby expanding the scope of the funds available. Berlin had come under massive international pressure to increase the size of the firewall so that it was large enough to potentially bail out countries such as Spain and Italy.

'Shifting Sand Dunes'

Opposition parties in Germany were quick to make political capital out of the Merkel administration's many U-turns during a debate on the euro rescue fund and the European fiscal pact in the German parliament, the Bundestag, on Thursday. "Your red lines have, in reality, become shifting sand dunes," Frank-Walter Steinmeier, floor leader for the center-left Social Democratic Party (SPD), said to widespread applause.

During the Bundestag debate, the opposition also reiterated their position on linking their support for the European fiscal pact with stricter regulation of the financial markets and measures to encourage growth. "We need a tax on financial transactions," said Green Party floor leader Jürgen Tritten.

The fiscal pact, which will introduce tougher rules for budget offenders, is Merkel's pet project and was agreed upon by 25 EU member states at a summit in January. But the German government is reliant on opposition support to get the pact through the Bundestag -- because it affects the parliament's competency on budget matters, it needs to be approved by a two-thirds majority. A vote on the pact is expected in May.

However, it seems unlikely that the opposition will get their desired financial transaction tax. Plans for a Europe-wide tax, or even one within the euro zone, appear to be dead in the water for the moment, given stiff opposition from Britain and even some euro-zone countries. The SPD is also reported to be divided internally on the issue, with some party members arguing that opposing the fiscal pact -- which many in the SPD regard as a sensible idea -- can only damage their credibility. On Thursday, Steinmeier appeared to signal flexibility on the financial transaction tax, saying in the Bundestag that if a pan-European tax were to fail, there were other ways to implement the same goals.

On Friday, German commentators take a look at the German debate on the euro crisis.

The center-right Frankfurter Allgemeine Zeitung writes:

"It is to be doubted whether all members of the Bundestag actually understand the financial dimension and the technical details of the ESM. It doesn't help matters that the federal government has repeatedly shifted its position on this issue -- as the SPD's floor leader Frank-Walter Steinmeier rightly pointed out."

"But the entire euro rescue is a balancing act. On the one hand, fiscal discipline needs to be promoted. The pressure on the crisis-stricken euro-zone members to carry out reforms must not be undermined by the knowledge that, if they fail, they will be caught by a financial safety net. On the other hand, there is the need for solidarity. Those countries that are in a better position can 'help the others to help themselves,' as Schäuble put it."

"As always in the EU, these things lead to compromises in practice, which also explains why the government has readjusted its position on the ESM. The high ratings that Merkel enjoys in the polls may be related to the fact that the Germans seem to intuitively understand this delicate maneuver."

The conservative Die Welt writes:

"In the debate over the euro rescue, the SPD and Greens are increasing succumbing to the temptation to make political capital out of the government's mistakes. During the parliamentary debate on Thursday, the parties' respective floor leaders, Frank-Walter Steinmeier and Jürgen Trittin, gleefully listed the many red lines that Chancellor Angela Merkel has drawn, only to cross them a short time later."

"They have a point. In December, Merkel argued, entirely convincingly, that boosting the euro bailout fund was the wrong course to take. After all, she said, it would reduce the pressure on crisis-stricken states to push through reforms. There was also the question of whether the creditor countries, including Germany, were in danger of being overwhelmed by ever-higher guarantees."

"Now, the fund is indeed being expanded, and the coalition government's former concerns have suddenly disappeared. Instead, the administration is attempting to conceal its own U-turn with highly flawed arguments. Volker Kauder, leader of the conservatives' parliamentary group, argued in all seriousness that the move would decrease the risk to taxpayers because a higher firewall would actually calm the situation. This is, at best, naïve. More probably, it was a deliberate attempt to deceive people."

The center-left Süddeutsche Zeitung writes:

"If we ignore the ritualized rhetoric, the pretense of indignation and the petty jibes, then two things are clear following the Bundestag debate on the future of the currency union: The fiscal pact will happen -- and the financial transaction tax won't. Even if the SPD is insisting that, for them, tougher budget rules in the EU member states and a participation by the banks in the costs of the debt crisis are linked together, it is already clear that the SPD will not veto the fiscal pact in the parliamentary vote in May because of the transaction tax. That's a good thing."

"Of course it would be sensible to use a transaction tax to put limits on purely speculative financial deals, generating billions in revenue as a side effect. But as long as peripheral groups -- such as the British Conservatives, Luxembourg's banking lobby and Germany's FDP -- resist introducing the tax on the EU or euro-zone level, it is pointless to try to fight them. It would be smarter to try to achieve the same goals through other means."

The left-leaning Die Tageszeitung focuses on the calls to boost the ESM to €1 trillion:

"A trillion! That's how much money France is now demanding for the euro rescue fund. Until now, Chancellor Angela Merkel only wanted to come up with €700 billion. On the surface, it looks as if a Franco-German showdown is on the horizon. In fact, it is nothing more than a PR battle, where nothing is really new. It was already clear last summer that the existing EU rescue fund, the EFSF, was much too small to save Italy or Spain in an emergency. Even then, people were talking about €1 trillion as a target."

"One trillion euros is a lot of money, and yet even this huge sum will not be enough. But again, that's nothing new. For months, calculations have been doing the rounds that show that at least €1.5 trillion will be needed. The only interesting question left is how long it will take France and Germany to acknowledge this reality."

-- David Gordon Smith

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1. Charade
muley63 03/30/2012
---Quote (Originally by sysop)--- European finance ministers meeting in Copenhagen on Friday agreed to boost the euro-zone firewall to over 800 billion euros. The move marks another U-turn on the part of the Merkel administration, which recently dropped its opposition to increasing the fund. German commentators warn that even the new firewall may still be too small. http://www.spiegel.de/international/europe/0,1518,824808,00.html ---End Quote--- Merkel needs to give up her red lines, because it is a 'charade.' Merkel needs to give a big speech about how Germany has a trillion dollar export sector and how the last four years Germany made $200 billion per year and that in no way will Merkel jeopardize the Golden Goose. She needs to reform the government of national unity because if the Eurozone is worth saving, there needs to be a fiscal and political restructuring of the Eurozone and a constitutional convention and following that a national vote of approval and thus the need for national unity government. France, Spain, and probably Poland is in. I don't know how many Eurozone countries will be in, but to form a new state, 15 is too many. Italy? The trick is it cannot be all deadbeats states or all export countries. I'd definitely would include Greece just because they are small and they represent Europe's first civilization and Europe does have an obligation to the Greeks. This is fun to think about and I feel Spiegel should carve out a section on their web site and forum to discuss this. People could talk about how to form this government. How to protect individual liberty, but not at the expense of efficiency. Lots of stuff. My idea would have elected politicians represent multiple areas from different countries. I don't know if there should be one president or chancellor or prime minister. Stuff like this would be fun to talk about. Merkel as President of the United State of Europe. Sarkozy as the Secretary of State. Cameron as Secretary of Defense (yeah, that's impossible, but cool).
2. Firewalls are not the answer.
tnt_ynot 04/02/2012
All this nonsense about Firewalls, Fiscal Pacts and more Europe is way off base. What is needed is good common sense about economic stability and not how to win the next election and be sentimental about a United States Of Europe. Hogwash. European's need to face reality and remove those from the Euro countries who are too weak to be in it until they've become competitive. It's that simple as described at:http://euro-meltdown.blogspot.com/ The Euro rescue is a testament to fauilure done in the slow lane of a never ending story. Over two years of mistakes and false projections. Anthony
3. Getting There
muley63 04/05/2012
---Quote (Originally by tnt_ynot)--- All this nonsense about Firewalls, Fiscal Pacts and more Europe is way off base. What is needed is good common sense about economic stability and not how to win the next election and be sentimental about a United States Of Europe. Hogwash. European's need to face reality and remove those from the Euro countries who are too weak to be in it until they've become competitive. It's that simple as described at:http://euro-meltdown.blogspot.com/ The Euro rescue is a testament to fauilure done in the slow lane of a never ending story. Over two years of mistakes and false projections. Anthony ---End Quote--- I feel Merkel is getting there, but Europeans are not. The Eurozone now has close to a trillion dollar bazooka. Something they should have had two years ago, but they finally got there. The fiscal problem had to wait two years for the politics to catch up. So, it looks like Europe will muddle through, but their indecisiveness and now their embrace of austerity will cause a double-dip recession. There is a political backlash brewing in the Med countries. The cure is worse than the disease and the lack of political representation at the Eurozone level will have repercussions. ***************** I have a lot of spare time, so I waste it by thinking of ..... In the future a Eurozone constitutional convention is called in Philadelphia and the first item on the agenda would be about representation and my suggestion would have a legislature represent not only one area in a country, but also at the same time multiple countries. For example, a person would represent the interest of both the Ruhr valley and Alsace-Lorraine. In practice, probably two different persons closely coordinating. Multiple representation would hopefully develop a deeper European consciousness instead of regional national differences. Probably impractical and too foreign. Something to think about though. I believe the E.U. parliament does something similar, but they are so ineffectual that nobody pays attention.
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