Division in Berlin Doubts Over Merkel's Euro Path Grow at Home

Angela Merkel has long been able to count on opposition support as she charts her euro-crisis course. But, as dissent grows within her own ranks, Germany's center-left is becoming uneasy, and a prominent economist is fomenting a revolt against her strategy.

Chancellor Angela Merkel is facing increasing headwinds on her euro strategy.

Chancellor Angela Merkel is facing increasing headwinds on her euro strategy.

Influential German economist Hans-Werner Sinn has always been something of a fly in the soup of Chancellor Angela Merkel's efforts to save the European common currency. As the head of the Munich-based Ifo Institute, Sinn has tirelessly warned that, with euro-zone central banks owing the Bundesbank upwards of €500 billion ($627 billion), Germany is in a precarious situation. "We are trapped," Sinn has been fond of pointing out.

Still, with plenty of other economists eager to counter his doomsday prophecies, Sinn has been an easy fly to ignore. But his isolation may now be coming to an end. SPIEGEL ONLINE has learned that Sinn, together with several other leading economists, is preparing a public appeal against the resolutions agreed upon at the most recent European Union summit. A draft of the appeal says that Merkel was "forced into" agreement at the meeting, held last Thursday and Friday in Brussels.

In particular, Sinn and his allies are concerned about the trend toward the creation of a European banking union and allowing the euro bailout fund, the European Stability Mechanism (ESM), to provide direct aid to struggling European banks instead of channeling that money through governments and attaching strict austerity and reform requirements to it. Such a move, the appeal states, means nothing less than the "collective accountability for the debts of banks in the euro system." Because the sum of that debt is almost three times as high as euro-zone state debt, the draft continues, "it is virtually impossible to make the taxpayers, pensioners and savers in the thus-far stable countries of Europe liable for that debt."

The summit made clear that the EU is moving toward a banking union which, in exchange for emergency aid, would also include a European bank oversight authority and possible euro-zone-wide deposit guarantees. That, though, Sinn and his allies write, would inevitably result in bitter differences between financially solid countries in the north and nations in need to the south. "Conflict and discord with our neighbors is unavoidable," the draft says. "Our children and grandchildren will suffer."

Merkel's Disappearing Majority

The economist rebellion is telling. As long as Berlin was partnered with Paris in its efforts to introduce reforms to save the euro, Merkel could count on broad backing at home. Now that she appears to be losing ground to the uprising led by Italian Prime Minister Mario Monti and French President François Hollande, concerns about Germany's ability to save the euro on its own -- voiced repeatedly by Merkel herself recently -- are rising.

Germany's center-left opposition, in particular, is demonstrating an increasing unwillingness to support Merkel's strategy for plugging the euro-zone dike. That combined with significant numbers of rebels within her own government coalition, which pairs her conservatives with the business-friendly Free Democrats, could spell danger to the chancellor in the near future.

The parliamentary vote last Friday provided a clear look at the rough road ahead. While Merkel received the two-thirds majority she was looking for in the vote to approve the ESM, fully 26 coalition lawmakers -- 16 conservatives and 10 from the FDP -- voted no. It is a clear indication that Merkel is losing control over her own parliamentary majority -- so much so that many political observers in Berlin have begun speaking of a coalition crisis. Indeed, given the growing rebellion, her reliable parliamentary majority is on the verge of disappearing altogether.

What's more, the opposition is also becoming restless and has vowed this week to no longer provide its unconditional support to the chancellor's euro-zone moves. Within the center-left Social Democrats, there is concern about the plan to provide Spanish banks with direct aid from the euro bailout funds.

"Merkel will not be able to rely on the permanent agreement of the SPD, and certainly not when it comes to this half-baked idea" of aiding Spanish banks, Social Democrat budgetary expert Carsten Schneider told SPIEGEL ONLINE. "She'll have to pass things with her own majority."

The Chancellor's Biggest Headache

The mood in the Green Party is similar. A source within the party's parliamentary group told SPIEGEL ONLINE that, if Merkel can no longer rely on her own majority, then she will "have to submit to a vote of confidence." The source added that pressure is growing within the party to cease supporting Merkel's euro-zone course.

Perhaps the chancellor's biggest headache, however, comes from her conservative allies in Bavaria. Horst Seehofer, governor of Bavaria and head of the CDU's Bavarian sister party, the Christian Social Union (CSU), warned in an interview earlier this week with the newsmagazine Stern that "at some point we will reach a point where the Bavarian state government and the CSU will no longer be able to say yes." He added: "And without the votes of the CSU, the coalition no longer has a majority."

Seehofer, of course, is famous for crying wolf, and his periodic eruptions are not always taken seriously in Berlin, nor should they be. Still, his concerns about offering up more German money to save the euro are real and he has been consistent in voicing them in recent months. If he were to turn his back on Merkel, it would likely mark the end of her government.

Merkel's next test could be coming soon. At the end of July, a special session of parliament will likely be called to vote on aid for Spanish banks. The chancellor won't require a two-thirds majority as she did last Friday. But all eyes will be on the behavior of coalition lawmakers. Should the rebellion show signs of persistence or growth, a confidence vote might not be long in coming.



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