Saving the Common Currency German Obstructionism Heightens Euro Fears
Part 4: Merkel's Plan
Both German Chancellor Angela Merkel and her coalition partners from the business-friendly Free Democrats have insisted that any long-term debt mechanism must not be made up exclusively of carrots, but needs a stick as well to encourage stricken countries to clean up their public finances. As such, Merkel would like to see a post-2013 crisis mechanism allowing for national bankruptcies within the euro zone.
Her plan calls for International Monetary Fund involvement as well as strict conditions being imposed on any countries in need of financial assistance. Furthermore, private creditors would be involved in debt restructuring "on a case by case basis" -- meaning that investors stand to lose.
Originally, Merkel's concept included a mandatory involvement of creditors in all cases as well as the suspension of European voting rights for the countries in question. Following talks with French President Nicolas Sarkozy, however, Merkel backed off from some of her more severe demands.
Still, her public musing about the involvement of creditors in national bankruptcies did little to increase confidence in the euro. Many lost sight of the fact that her plan was only to take effect once the EFSF expired in 2013, and investors began a massive sell-off of Irish debt that led to a worsening of the euro crisis.
The blunder opened Merkel to criticism that she is not the committed European she claims she is. Germany's leading opposition party, the center-left Social Democrats, accused her on Wednesday of turning her back on Europe.
Similar criticism has come from elsewhere as well. "The direction of the EU must be supported by all 27 together and must not be dictated by the big countries," Luxembourg Foreign Minister Asselborn said on Wednesday.
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