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Euro crisis: “It would raise incredible doubts about our credibility if we simply were to change the rules…”

Tue 17 May 2011, 3:45pm

With EU finance ministers pondering the future for Greece, and European officials publicly disagreeing on the possiblity of the rescheduling/restructuring of sovereign debt, Frau Bundeskanzerlin has decreed that there will be no sovereign default in the euro zone before 2013.

As ministers prepared to tackle the increasingly precarious financial situation in Greece, Dr Merkel made clear her resistance to any debt restructuring by the country.

Addressing students in Berlin, Dr Merkel said private sovereign creditors should not bear losses until the ESM starts its work.

“It would raise incredible doubts of our credibility if we simply were to change the rules in the middle of the first programme,” Dr Merkel said.

The chancellor’s intervention unambiguously reinforces the public stance adopted by euro group chief Jean-Claude Juncker and the European Central Bank.

However, Dutch minister Jan Kees De Jager said “all kinds of topics”, including restructuring, remained under discussion. He added: “In public we are very reluctant about discussing and debating restructuring.”

As the Irish Times’ Arthur Beesley points out

In battle-weary Berlin, scene of bruising political fights over the sovereign debt debacle, Merkel is still coming to terms with her unexpected new role. The crisis casts a wary country in the fateful guise of guarantor-in-chief for the euro zone, raising insistent questions about the evils of a European transfer union.

Reluctant to rescue Greece, Merkel’s dithering last year worsened the crisis. But there’s no going back now.

Problems multiply. Merely a year into the Greek intervention and Athens is again on the rack. Ireland has been rescued, but wants better terms. While a long-delayed Portuguese bailout is now done, the deal still rests on an unpredictable election next month. Spain remains a risk. In the political backrooms of Berlin, they have yet to fully figure out what to do about all this.

Even if big questions over past fiscal “sins” remain unresolved, it seems clear enough by now that the chaotic course of the drama serves to magnify German power.

Many say “more Europe” will be the natural outwork of the crisis, at least for now. In reality it means “more Germany”. Merkel’s effort to recast the single currency area in Germany’s image via her “Pact for the Euro” was portentous.

As Europe grapples with the latest Greek outburst, she remains in prime position, the one with the final say.

And as Arthur Beesley goes on to say

Similarly, the Commission’s call for powers to police the Schengen visa-free zone meets with a shrug.

Germany abstained from the UN resolution to authorise the Libyan no-fly zone, separating the country from France, its closest ally, and Britain.

Berliners insist, however, that there is no waning in Germany’s commitment to its external obligations. In the 1990s, the country was told to adopt a grown-up foreign policy. The argument goes that grown-ups make their own decisions.

Expect more of the same. Germany’s bargain with Europe and its European partners is in flux. New limits have been reached, new strains are evident.

The big “question is whether all this can be kept under control.”

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Comments (2)

  1. and credibility is questioned if they don’t. Most of all credibility is questioned when they prevaricate and do nothing, making a crisis even more likely and even less room for any chance of making necessary changes in the rules. Germany fiddles while the eurozone burns money.

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  2. [...] the whole thing.  But be aware that Frau Bundeskanzerlin has already said ‘Nein’.  At least until [...]

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