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Friday, July 27, 2012

Bavarians are getting increasingly restless over eurozone bailouts

Debt-pooling goes down less well in Munich
Its not just Spain that has a problem with its regions. Over in Germany, Bavaria is getting increasingly angry over the additional burdens imposed on Germany as a result of the eurozone crisis - both via the existing bailout funds and possible future burdens via eurozone debt pooling. This is because in addition to its strong regional identity, it is the wealthiest of Germany's 16 statesa bigger burden on German taxpayers therefore equals a bigger burden on Bavaria.




The day after Moody’s placed Germany as a whole on negative outlook, it placed Bavaria and five other German states on negative outlook as well. While the German government reacted quite stoically – saying it had “taken note” of the decision – the response from Bavaria to its 'outlook downgrade' was far more robust. The state’s Finance Minister Markus Söder told Süddeutsche that:
"The Bavarian finances are in top condition, we are paying back our debts. I would expect us to win a gold medal.”
The state’s Prime Minister, Horst Seehofer argued that the decision "ought to send a warning signal to the rest of Europe". Both politicians come from the CSU, the Bavarian sister party to Angela Merkel’s CDU, which governs Bavaria with the FDP as its junior coalition partner. In the German debate, the CSU has taken the hardest line on Europe’s so-called ‘debt sinners’; yesterday Söder became their latest senior politician to explicitly call for Greece to leave to eurozone – in contravention of the government’s official position, while in an interview last week the party’s General Secretary Alexander Dobrindt said that:
"With Greece we have reached the end of the road. There must not be any further aid. A country which does not have the will to fulfil the conditions, or is not able to do so, must get a chance outside the euro”. 
However, it is not just Greece that has attracted the ire of the CSU – in the same interview Dobrindt laid into the opposition SPD and Green parties, describing their positions on the eurozone crisis as a “betrayal of German interests”:
“We will defend the bastion that is Bavaria against the onslaught of the left… The [upcoming regional and federal] elections will be hard clashes with the opposition parties over major social issues: the SPD and Greens want German taxpayers’ money in exchange for eurobonds. They represent the interests of the Socialist International and not those of German citizens. They are preparing the ground – together with the French President [Hollande] – for a ‘eurosocialism’. Their egalitarianism comes at the expense of Europe’s top performers [and will] threaten the prosperity of Europe.”
Dobrindt’s intervention is noteworthy because it is the first time that a senior mainstream politician has explicitly called for the eurozone crisis - and longer term questions such as eurobonds - to be made into defining issues in next year's elections. Until now, despite accusing Merkel's government of poor political management, the SPD and Greens have broadly taken the same structural approach to the crisis - i.e. bailouts and savings/reform packages, albeit with additional emphasis on 'pro-growth' measures. It will be interesting to see if and to what extent Merkel and the CDU will heed Dobrint’s call to adopt a tougher tone.

Bavaria’s position in Germany can be seen as a microcosm of the eurozone as a whole – together with neighbouring Baden-Württemberg they largely subsidise public expenditure in the Western Länder and the former DDR – the latter via a statutory ‘Solidarity payment’ on top of general taxation. Given that many Bavarians are unhappy with this arrangement - the state government recently launched a
legal challenge - their resistance to funding another ‘solidarity payment’ – this time for the Mediterranean bloc – should not be underestimated. Earlier this month, Seehofer warned that:
“Eventually, a point will be reached when the Bavarian government and the CSU can no longer say 'yes' any more [and] the coalition has no majority without the CSU's seats.” 
While this is unlikely to happen any time soon, the CSU’s resistance will severely restrict Merkel’s ability to place further eurozone rescue related burden on the German taxpayers in the remainder of the current parliamentary session and beyond.

As Germany as a whole faces the question of how it will respond to the crisis in the longer term – with a range of options running from a break-up to more political and economic integration – expect Bavaria to be at the forefront of the resistance to the latter option.

7 comments:

Bugsy said...

Someone with some political clout in Germany talking sense.

Italy and Spain talk about austerity but will they be able to sustain it -NO.

The EZ will be bailing out countries with what seems to be mythical money until the market says enough.

The solutions being put forward for some years that involve bail outs are not working. The just prolong the agony.

The problem needs a permanent fix.

Anonymous said...

The ESM fund may not be allowed to come into effect - Irish Supreme Court has referred ESM to the Court of Justice of the European Union on three major legal points http://www.thejournal.ie/is-the-esm-legal-535053-Jul2012/

christina Speight said...

The whole shambles is getting more farcical by the day. In the middle of an unresolved crisis the President of the European Central Bank . Mario Draghi, says he will do "everything it takes" to save the Euro. What it takes apparently is for Mr Draghi to go on holiday for tonight's money-burning whoopee at the Olympic stadium and what's more he's got good company in that also there is Christine Lagarde, the IMF Managing Director.

Could they be accused of "partying while Madrid burns" ?

Rik said...

@Christina
Just think if these 2 are 2 weeks at the Olympics they cannot throw away money somewhere else. In that respect it is probably a very good investment.
Per week clearly cheaper than all those not working rescues.
Only that the UK is paying and Europe has the profits. But the Europeans will owe you their eternal gratitude for that. Should be reward enough.
Enjoy the games and a very nice weekend.

Rik

Anonymous said...

British schadenfreude makes as much sense as someone watching gleefully the fire in his neighbour' s house... By the way, does anyone here realise that European taxpayers have been helping British banks with their doubtful investments in the Club Med??? Barclays is in Spain, or Portugal.

Rik said...

@Anonymus
British Schadenfreude makes in so far sense that the reason thereof creates the perfect moment and momentum to reneg the UKs relation with the EU.

Of course the economic repurcussions of the Euro collapse will be bad for Britain as well. No doubt about that.
The chance thereof will however be about the same with or without British Schadenfreude.
So better a collapse with a smile than one without. There are simply few things better than see a persistent 'know-everything-better' fall on his face.

whoknows said...

@ Anonymous said...
"British schadenfreude makes as much sense as someone watching gleefully the fire in his neighbour' s house..."

At least they had the common sense not to join this crime on the peoples of europe called Euro. Good for them. I envy them.

The german politicians promised the german people that the Euro would be as stable as the DM. There would be no transfer of wealth. Nothing but lies and deception.

As a german taxpayer I find out, that the Euro is nothing but a huge lie and the tool to force the free peoples of europe into a socialist superstate.

The EU and its tool the Euro is killing democracy and stealing nationhood in the process.

Its time that all people get restless about this lie and crime called a currency, not only bavarians.