Berlin Concerned About Merkel’s “Concessions”

German lawmakers are not happy about the concessions Angela Merkel made to Italy and Spain.

Prime Minister Mario Monti of Italy, European Central Bank president Mario Draghi and Chancellor Angela Merkel of Germany during a European Council summit in Brussels, June 29
Prime Minister Mario Monti of Italy, European Central Bank president Mario Draghi and Chancellor Angela Merkel of Germany during a European Council summit in Brussels, June 29 (The Council of the European Union)

Conservative and opposition lawmakers in Berlin worried on Friday that German chancellor Angela Merkel, at a European Council summit in Brussels the night before, might have loosened aid rules for debt stricken Italy and Spain too far.

Carsten Schneider, a senior Social Democrat and member of the Bundestag‘s budget committee, demanded that the chancellor explain her “180 degree about turn.”

Before the summit, Merkel insisted that aid could not come without conditions but under intense pressure from her Italian and Spanish counterparts, she agreed that Europe’s rescue funds could be deployed to stabilize their countries’ borrowing costs without forcing them to adopt extra austerity measures or economic reforms.

Jürgen Trittin, head of the opposition Green party, was also critical of another change that European leaders agreed to make — to let the European Stability Mechanism loan directly to ailing banks. “These are both positions Ms Merkel always rejected and which she has now had to accept,” he pointed out.

The latter concession could help Spain which requested up to €100 billion in financial assistance this week to recapitalize national banks that are laden with debt from a burst housing bubble.

Italian prime minister Mario Monti and Mariano Rajoy of Spain had demanded action from their eurozone peers in order to reduce their borrowing costs. Both have introduced measures to reduce their deficits and liberalize their economies but the pace of reform has disappointed Germany and its hawkish allies Finland and the Netherlands.

Italy and Spain are both deemed “too big to fail” but do not want to tap into Europe’s rescue mechanism and give up control of economic and fiscal policy to a “troika” of representatives from the European Central Bank, the European Commission and the International Monetary Fund. To the Dutch and the Germans, it sounded as though they were asking for a bailout without the strings attached.

German press were not sympathetic to what they perceived as the chancellor having given in to Italian and Spanish demands.

The influential Der Spiegel described last night as one in which “Merkel lost.” The weekly raised questions about the durability of Ireland’s bailout program. It, too, has had to finance a massive recapitalization of its financial industry and will likely try to renegotiate the terms of its bailout. If Spain can have help without austerity, why shouldn’t Ireland?

An editorial in the conservative Frankfurter Allgemeine Zeitung warned that “the conditions for EU aid are increasingly blurred” and a “debt union” is imminent. Business newspaper Handelsblatt said that “the balance of power in Europe has changed” from north to south. The much feared German prospect of “transfer union,” the permanent bailing out of weaker countries in the periphery of the single currency union at Germany’s expense, is starting to become a reality.

The German parliament is set to ratify the creation of the European Stability Mechanism, the permanent bailout fund that will replace the European Financial Stability Facility, as well as December’s fiscal compact on Friday. The ruling conservative and liberal parties need left-wing support to gain the required two-thirds majority.