Frau Bundeskanzlerin’s “grand bargain”

The BBC’s Europe editor, Gavin Hewitt, has the latest murmurings from Europe on Frau Bundeskanzlerin’s “grand bargain”.  If true, it could indicate the price to be paid for renegotiating the terms of Ireland’s €85 billion bail-out…

From Gavin Hewitt’s Europe blog

Much of the detail is still being discussed. There are differences within the German cabinet and between eurozone countries. However, a broad outline is emerging.

Germany will agree to increase the lending power of the main bail-out fund (the EFSF) so that it actually reaches 440bn euros. It will be used more flexibly, including perhaps buying up bonds. Greece and Ireland could be given more time to repay their loans, and at a lower interest rate than at present. Some senior bankers have suggested the loans not maturing for 30 years.

In exchange, the rest of Europe will have to become more like Germany. It could be that the retirement age across the EU would have to go up. A benchmark would be agreed. A debt brake might have to be written into national legislation (perhaps at no more than 60% of GDP). Tax rates could be harmonised. All in all, tougher discipline over tax and spending would both be demanded and enforced.

Chancellor Merkel defined the bargain like this: “solidarity and competitiveness are two sides of a European coin”. In other words, solidarity will come at a price. Other countries will have to become more competitive.

There is much to be argued over. Will Germany actually agree to a lowering of the interest rates that Ireland and Greece pay for their bail-out loans? That would be controversial within Germany. Will Greece be allowed to buy back its debt at a discount which would be restructuring by the back door?

If Greece and Ireland are given more time to repay their debts, how can that be done without appearing to let them off the hook? Would countries like Italy, for example, agree to the EU setting debt limits? Will the so-called “grand bargain” allow for some debt restructuring and for some actual fiscal transfers from countries like Germany and France? The answer is we don’t know.

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  • Cynic2

    So given SF’s claimed stance on the existing deal what will be their negotiating stance:

    1

  • Cynic2

    So given SF’s claimed stance on the existing deal what will be their negotiating stance:

    1 release Gerry’s undoubted wit and charm to bore her into submission with endless redefinitions of what ‘Ein Euro’ actually means in Irish

    2 a big smokey left my some of their former comrades outside the HQs of Deutsche Bank in Frankfurt as a reminder of what could happen if she doesn’t give in?

    Well, it worked before after all

  • It is not yet clear what the finer details of this proposal will be. I have checked for information elsewhere. The question I pose is, will there be a new treaty or wont there?

    Reading between the lines, there will not and the reason for that is probably that it would be almost impossible to get one passed, given what has gone on before. In other words, Germany and the other “hard core” nations will now have to rely upon political will, across the Eurozone, in order to stabilize the Euro. I can see the other Eurozone leaders saying “yes” to the proposals and putting on a smile in front of the cameras. But what happens when they have to deal with political pressures closer to home?

    There will be pressure and lobbying from many directions and remember, politicians have a duty to win elections. That is their number one priority. So if it means ditching a promise made to Angela for a couple of extra seats, well, you know what political pressure is like, particularly when the opposition say, “We would not have agreed to sign up to this proposal in the first place”

    Thats my rant for the day. As you can see, I have no faith in the ability of the politicians to stick to such a plan but my opinion does not matter.

    What about the bondholders though?

  • ORWELLSPEN

    Ein masterstroke. Dig traps for your quarry and watch them fall into them. Rescue them with conditions attached, dangling them over the traps until all debt is paid. Macheavelli would be proud. Germany now can get nations to change ther basic laws and social and economic structures to harmonise with Germany itself.

    This is the start of a cultural takeover. One cannot take over your neighbours house with pikes or guns anymore. The UN wont have that anymore but if you make your neighbour dress like you on a Sunday, eat like you on a Monday, walk like you on Tuesday, speak like you on Wednesday, watch your prescribed TV shows and movies on Thursday, work like you on Friday then by Saturday, or should I say Sonnabend, your neighbour will be you. On Sunday, you can knock the walls down as you can make the case that you and your neighbour are one and the same.

    My word, how we have all slept walked like prize dummies. Never mind, the X Factor and Heat magazine will distract us.

  • Greenflag

    The Germans are of course NOT being told of how their ‘offshore’ day banks were operating in Ireland and how they were breaking ‘ German financial regulations in the pursuit of higher profit for the international bondholders . There have been a few reports which touched on the scandal with the German Hypo Bank (property focused bank) . Ireland may seem to us to be a little large to function as a kind of Cayman islands but that’s obviously what attracted German, French and British ‘investors ‘ and indeed our own .

    But when the sun went down on this island in the then financial sun – the ‘gamblers ‘ eschew all responsibility for their poor decision making and want the Irish ‘taxpayer’ to fund their gambling ‘debts’

    Why we should is not a question which ANY of our politicians ask or seem to want to ask 🙁

  • Greenflag

    @ orwellspin,

    ‘Ein masterstroke. Dig traps for your quarry and watch them fall into them. Rescue them with conditions attached, dangling them over the traps until all debt is paid’

    That’s the IMF not the Germans .

    ‘Germany now can get nations to change ther basic laws and social and economic structures to harmonise with Germany itself.’

    That would be the USA these past 20 years or longer -the more so since the end of ‘history’ and the collapse of communism -the then only ‘alternative’. Of course if a country has large supplies of fossil fuels or is a strategic ally of the USA then it has two choices – it can be invaded and occupied (Iraq, Afghanistan etc) or it can have any ‘regime ‘ it wishes ranging from feudal monarchy to kleptocracy to one party dictatorship to authoritarian capitalism ( Egypt, Tunisia , Russia , China etc )

    ‘This is the start of a cultural takeover.’

    So no longer ‘Vorsprung Durch Technik’ but ‘Vorsprung Durch Kultur’

    Won’t work in Ireland . Ask the British . Even getting the ‘natives’ to speak English as their majority language only encouraged them to shout the louder and fight for their ‘independence ‘ the more . Maybe the Germans are cleverer than the Brits;) ? but then the Romans did’nt think so -well not back then anyway .

    What’s facing Ireland and other peripheral regions including most of Britain outside of the South East is eventual economic and political ‘marginalisation ‘ by the core economic zone in the EU which includes Germany /France /Holland/ Belgium/Northern Italy/SE England – (approx population of the ‘core ‘ is 250 million )

    So we had better be prepared to fight tax harmonisation in respect of corporation tax rates as this is still critical for the Republic’s continued economic development -and it will be in the price of ‘re negotiation ‘ . Does the EU want a ‘more ‘ dependent Ireland on it’s periphery (a la Northern Ireland ) or does it want a ‘contributor ‘ longer term ? Or is it just ‘terrified ‘ of it’s bigger ‘core ‘ banks dragging the euro into history ?

  • Frau Merkel has shifted from her previous position of “harmonisation” of the whole 28 in the EU. Since this was never going to happen, it was the reason for Germany to previously sit on its hands and do nothing substantial to save the Euro. This new policy is a shift out of necessity. Merkel has seen the danger coming and has ditched her previous stance. She will have a big problem selling it to the Germans. The great mass of their population simply do not understand the real forces that are at work.

    The Irish, meanwhile, have to continue to fight their corner on Corporation tax. The Germans need Ireland to continue to prop up its banks more than Ireland needs the lower CT. Their own banks are still owed a lot of money. As long as it has the political will to kiss goodbye to its banks, the Irish hand is not as weak as it looks on the face of it.