Ultimately, there is Nothing to Save Us from Euro Bonds

Published on 2012/05/29

The pressure to introduce Euro bonds keeps mounting. (Nearly) all other political forces are in favour of it, and Angela Merkel the only one opposing it (so far). That France, Spain, Italy, Greece and Portugal make a case for Euro bonds are plausible because of their interests at the moment. Their introduction would imply lower interest for them, while Germany would be directly liable for their debt.

The situation bears an odd resemblance to that of a group of debtors who have gambled away their creditworthiness but manage to convince a high-net-worth friend to form a civil-law partnership with them that will be jointly liable for any debt of its partners. Since this fails to make any sense whatsoever for Germany, a recent poll suggests that seven out of ten Germans are against Euro bonds. Social Democrats, Greens and Leftists (“Die Linke”) have openly supported the idea of issuing Euro bonds, even if the Social Democrats no longer dare to flaunt their support too vociferously and aggressively.

I don’t even think that Angela Merkel is principally opposed to Euro bonds. And why should she be? For somebody like Merkel who holds no firm convictions on any issue, and whose sole objective is to perpetuate her power, nothing is non-negotiable. Moreover, Euro bonds would actually represent a plausible continuation of her policy so far.

However, the Liberals, part of her coalition government, positioned themselves in such strong opposition to this option that the Chancellor would bring the coalition to a premature end if she folded in this issue. As a result, Merkel has so far resisted the pressure she has been put under by other European countries. Next year, however, the cards will be reshuffled, clearing the way for Euro bonds at long last (assuming the Euro survives until then).

The way things look at the moment, the current coalition is unlikely to win another parliamentary term. Instead, the following constellations are currently conceivable:

  • a coalition between Social Democrats and Greens
  • a coalition of Social Democrats and Greens tolerated by the Leftists (if the latter’s moderate board member Bartsch carries the day)
  • a coalition of Social Democrats, Greens, and leftist party (again, if the latter’s moderate board member Bartsch carries the day)
  • a coalition of Social Democrats, Greens and new-comer “Pirates”
  • a grand coalition of Christian Democrats and Social Democrats

Any of these constellations will ensure the issuance of Euro bonds.

That being said, it cannot be ruled out that the Euro bond may come much sooner. There might be some sort of shady deal that will seek to persuade people that Germany’s potential liability has been restricted.

The clever thing to do for the Liberals would be to let the coalition fall apart over this issue, and then to campaign in the upcoming federal elections as the one party that opposes Euro bonds. This would definitely ensure that it gains more than the 4% of the popular vote that the latest opinion polls have predicted as likely outcome. Sad to say, there is every reason to doubt that the Liberals will muster the courage to pitch themselves “against the rest.”

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