Jean-Claude Juncker was desperate. The Prime Minister of Luxemburg and newly re-installed President of the Eurogroup—which brings together the Eurozone’s finance ministers to exercise political control over the euro—is the ultimate Eurozone infighter and insider. “We all know what to do, but we don’t know how to get re-elected afterwards,” he’d once said, now referred to as “Juncker’s curse.” But he knows how to get reelected, being the longest serving head of state in the EU—Prime Minister since 1995. So when he is desperate, even the eight justices at the German Constitutional Court listen.
Juncker made his desperation known when he criticized the decision by the justices to take their time—three months—to decide whether or not the latest bailout fund, the European Stability Mechanism (ESM), passes constitutional muster in Germany. It should have been operational by July 1, but with a few words, they’d thrown all bailout convulsions into even greater disarray.
The delay had Juncker on edge. It’s “not helpful,” he told the Spiegel on Saturday, pressuring the eight justices to speed up the process. “I think they know in which maximum time frame we must act,” he said.
Because in September, it’s decision time: the bailout Troika—the European Union, the European Central Bank, and the International Monetary Fund—will decide whether or not Greece should receive the next bailout payment. The chances are not good. It has ignored most of the structural reforms it agreed to implement as part of the second bailout package, and the Troika is losing patience.
If the decision is no, Greece will default on its debt and most likely exit from the Eurozone. The consequences will plow tsunami-like into banks and financial markets. The largest possible firewall would be needed to limit contagion, recapitalize tottering banks, and keep the Eurozone from unraveling. But the temporary bailout fund EFSF is already paying for Greece, Ireland, and Portugal, has committed €100 billion to Spain, and is waiting to bail out Cyprus as well. With its €250 billion limit, much of its dry powder has been spent. Hence, Juncker’s desperation.
And the Court yielded: on Monday, it promised to speed up proceedings. The decision would be made by September 12, in two months rather than three. Another indication that they might yield all the way by nodding the ESM through, albeit with some restrictions. Clearly, they don’t want to be labeled in history books as the eight Germans who killed the largest monetary union ever. They’d leave that up to politicians.
And politicians were scratching each other’s eyes out over it—in a show of just how confused and irrational the end-game-like euro fiasco has become. Because it’s apparently still not clear how, and to what extent, the ESM had been modified during the last EU Summit.
Klaus Regling, the anointed boss of the ESM, announced that, according to the agreement reached at the EU summit, banks would be bailed out directly by the ESM, thus “freeing the country from liability.” Juncker and Olli Rehn, the European Monetary and Economic Commissioner, backed him up.
Outcries everywhere. Sigmar Gabriel, chairman of the opposition SPD, without whose support these bailout measures would have difficulty passing in parliament, threatened to walk away if Chancellor Angela Merkel wanted to “convert the state bailout into a speculator bailout.”
Merkel slapped them down during a ZDF interview: there will be no direct bailout of banks from the ESM, regardless of what anyone says, she said, and countries would have to guarantee the loans to bail out their banks, at least for the time being. Her spokesperson Steffen Seibert later confirmed that “the state requests the bailout, the state receives the money, and the state is liable.” And that, he said, counted for the EFSF as well as for the ESM.
Now it seeped out that Merkel has concealed from parliament some explosive details of the Spanish bank bailout in order to bamboozle parliament into approving it when it comes up for vote on Thursday. Of the €100 billion, the first tranche of €30 billion should be paid in July. But unless parliament approves it, Finance Minister Wolfgang Schäuble cannot vote for it at the EFSF, where unanimity is required. Hence, a no by the Bundestag would axe the Spanish bailout package. Mayhem would break out on the spot.
So, to make sure the bailout vote would sail through the Bundestag, Merkel has cut some corners—or so claimed Frank Schäffler, a member of Merkel’s coalition partner FDP, in a letter to Bundestag President Norbert Lammert. And he asked that Lammert demand from the government to “inform the Bundestag carefully, in particular with regards to direct recapitalization of banks.”
Thus, the euro bailout strategy, so contingent on Germany, has become a disaster of disagreements—even basics, such has the contents of an EU summit agreement, lead to acidic confrontations. A sign that a solution is further than ever away.
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.