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…
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.