Saturday, 12 February 2011

How much does Germany love the euro? [ Part 2]

The following news story from Reuters illustrates the difficulties ahead in persuading the German population that it is in their best interest to preserve the Eurozone.

(Reuters) - The German government may need a two-thirds majority in parliament to approve any deal on the new permanent rescue mechanism for the euro zone, meaning it will need opposition support for any compromise, Der Spiegel magazine reported on Saturday.

The report by the Bundestag's legal department underlines the challenge facing Chancellor Angela Merkel to convince the public and allies at home of a deal which will commit Germany to bankrolling future bailouts of euro zone member states.

At a summit in December European leaders agreed to set up a permanent mechanism from mid-2013 to solve sovereign debt problems. It will replace the temporary system -- a 750 billion euro emergency loan facility created by the EU and IMF in May.

As a quid pro quo for her support for the scheme, Merkel and French President Nicolas Sarkozy have put forward proposals for a "competitiveness pact" which is to be hammered out by March and has provoked strong opposition from other EU leaders.

Berlin's ability to compromise on the steps -- which seek to end wage indexation, raise retirement ages and lock debt limits into national constitutions -- may be influenced by what the government can sell to a domestic audience.

Der Spiegel said the legal opinion on the issue -- pointed to by an MP from Merkel's junior coalition partners -- found that a two-thirds majority would be required because the European Stabilisation Mechanism (ESM) would involve an extensive intrusion into the Bundestag's administrative sovereignty.

Merkel's center-right coalition would need backing from the opposition Social Democrats to obtain a two-thirds majority.

Recent indications are that many Germans are becoming disillusioned with the euro and feel that their elected representatives are not taking notice of their growing disenchantment with the EZ. For example these two excerpts come from an article at Spiegel Online:

Surveys show that many Germans are worried about the future of the euro, but the country's political parties are not taking their fears seriously. The number of grassroots initiatives against the common currency is increasing, and political observers say a Tea Party-style anti-euro movement could do well.

Unnerved by shaky, debt-ridden countries and bailout packages worth billions, the majority of Germans want the mark back. In a survey conducted in early December by the polling firm Infratest dimap, 57 percent of respondents agreed with the statement that Germany would have been better off keeping the mark than introducing the euro. Germans, it seems, are gripped once again by their historic fear of inflation: According to the Forschungsgruppe Wahlen polling institute, 82 percent of the population is worried about the stability of their currency.

Although of a different order of magnitude, recent geo-political events suggest that politicians should think again when not listening to the concerns of their constituents.

A few weeks ago I posted an article on a related theme entitled How much does Germany love the euro? which can be found here, and, it may be that under the requirement that Merkel needs a 2/3 majority for approval to provide additional support for the single currency, she just may be trying to build a bridge too far.

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