“Germany must desert the eurozone, and the Chancellor must engineer that”
The German Chancellor returns from holiday next week. The Slog’s veteran Frankfurt banking mole says she has made the task of educating the Germans about Euroblown extremely difficult…and has only a limited window in which to do it.
“The ordinary German has no idea what we are taking on,” The Slog’s long-serving Frankfurt Mole ‘Maulwurf’ told me this lunchtime, “They see a grand project and Germany at the centre of a strong Europe eventually. Of all the European nations, they are perhaps the worst informed about the realities of the euro disaster”.
In many ways, the Bankfurt Maulwurf is right. German public opinion is strongly opposed to Greece staying in the eurozone and getting “yet more” help as they see it, but comprehension of why Greece is in the mess it is (and, for example, the role of Franco-German arms sales in the collapse) doesn’t figure highly – if at all.
Yet Brits and Americans shouldn’t extrapolate from this that the German voter has a problem with the euro. The irony is that, the naturally secretive nature of Wolfgang Schäuble and Angela Merkel being what it is, the Berlin government would now have a problem should it ever wish to point out to the electorate just how big a mess the eurozone is in. The average voter didn’t notice today, for instance, that German Bund yields rose on the uncertainty surrounding the ECB/ESM future moves, and some poor export data showing even Germany now having a hard time of it.
“The government should finally be honest about it to the people,” said Frank-Walter Steinmeier yesterday, SPD floor leader in the Bundestag and one-time foreign minister in Merkel’s first government, “If we want to prevent the breakup of the euro zone, it won’t be without risks for Germany…she [Merkel] fails to say that Germany is already exposed to losses from the debt crisis through the European Central Bank’s bond purchases.”
“Steinmeier is right about the dishonesty,” the Maulwurf insists, “but like all social democrats he thinks the impossible can be made possible. It can’t: Germany must desert the eurozone, and the Chancellor Angela Merkel must engineer that.”
Angela Merkel returns from holiday next Monday, but the pressure she faces then will be from the very pro-EU SPD Opposition to ‘get off the pot’. Her Government grudgingly backs Mario Draghi’s proposal to help lower borrowing costs in Spain and Italy with more direct bond-buying, but the SPD wants her to be more pro-active, and assume greater risks, to avert a breakup of the single currency.
To the likes of the Bundesbank’s Jens Weidmann and The Slog’s Bankfurt Maulwurf, this represents idiocy of the highest order.
While a potentially smart political move by the SPD, the Party may be yelling at a brick wall. An Infratest dimap poll for ARD television last week showed that 76% of Germans think a breakup of the euro would be bad for Germany, but 64% were confident the euro would survive. And 56% said the government should “do everything” to save the euro. Replace ‘everything’ with ‘nothing’, and you’d have the UK sentiment spot on.
“Their confidence is based on ignorance,” says the Maulwurf, “that, and Merkel’s easy facility with the smoke and mirrors”. But whether she is sparing with the truth or not, Merkel is not in that much trouble with the electors right now: the Infratest poll showed 68% of Germans approving of her overall approach – her best score since December 2009. Roughly the same number feel that saving the euro is “in good hands” with Merkel.
This is all good news for the CDU Chancellor…until a major can of worms opens. Or even worse, she has to tell the Germans that they are quitting the eurozone.
The Karlsruhe Constitutional Court might wake some people up….especially if President Gauck were to weigh in around the time the Court rules on ESM legality on September 12th. Most observers think this unlikely, but I’m not so sure: an Osti himself, Joachim Gauck has never trusted Merkel. Let’s face it, there’s a lot about her not to trust.
More likely can openers lie along the Spain/Italy nexus. Cleverly positioned thus far as Draghi’s programme of bond-buying (‘don’t mention the bailout’) most Germans once again see the problem as soluble. But The Slog’s Maulwurf speaks for many in Frankfurt when he observes, “The problem is not soluble, not as the eurozone is now constructed. And [Merkel's] dash for Fiscal Union would put Germany effectively in the position of being a sovereign. There are many in Frankfurt you know who say ‘thank God for Hollande'”.
I think our Bankfurt chum is being over the top when he says Germany would be the sovereign power – this is my gag about Berlin-am-Brussels being taken to an extreme – but I sense he’s right that Germany may well be the last sovereign standing when the dust settles. And it’s not hard to understand why he sees Hollande as a welcome saboteur: the Maulwurf is very much of the Jens Weidmann ‘stop chucking good money after bad’ school.
“The balance of power has changed markedly – everyone can now see this,” the Bankfurt Maulwurf continues, “but not the German people. Everything Merkel has done has been to the detriment of Germany, but now she is in a prison of her own making. She will have to shout through the bars of her cell, ‘Wake up! Get out! It is out of our hands!’ I hope she does this in time, but I have my doubts.”
We shouldn’t see the Maulwurf’s view of life as in any way typical of German opinion: in many ways, that’s his point. But he is well-informed, cosmopolitan, and on the whole a good judge of trucks coming down the road. The reality he grasps is that Greece will default after further haircuts, Spain will need a full-scale bailout, Italy’s bonds will suffer once that becomes clear, and Mario has already accepted that more money must be printed – be it in Athens or Berlin.
These kinds of events have a habit of happening more quickly than politicians think: and far more quickly than most politicians can think. My source has always maintained that other forces in Germany will steer Merkel away from the rocks. He may well be proved right again. And the only way for her to go would be out of the euro….or a drastic reformulation of its membership.
We should all watch out for the signals from Angela Merkel next week.