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Thursday, May 24, 2012

Does the SPD really support eurobonds?

Update 1.45: It looks like Trittin has performed one of the fastest and sharpest u-turns of recent times, as he is quoted by Reuters earlier today as saying: "Merkel should stop blocking eurobonds" and suggested it could be a condition for his party's support for the fiscal treaty. This is also a matter of semantics though, as the Greens remain in favour of a limited form of fiscal burden sharing or debt mutualisation. It still illustrates the wider point however: eurobonds are in for a rough ride in Germany.

Update 1.15pm: Die Welt has published a more detailed follow-up on the issue and the Green party has followed the stance of its oft senior coalition partner and also rejected eurobonds at the present time. Green parliamentary co-chairman Jürgen Trittin said that while he agreed with the economic principles behind them, they were the wrong solution at this time, not least because it would require changing the EU Treaties. The paper states that both parties prefer an alternative, only partial, pooling of eurzone debt, possibly via a debt redemption fund.

Original post:

There's a school of thought out there - usually fairly uninformed - which has it that a German government that features the SPD (social democrats), could fairly effortlessly strike a deal with Francois Hollande over further fiscal integration, which would include, for example, eurobonds and greater ECB intervention. People arguing this point notes that SPD supports eurobonds, while doing fairly well in opinion polls. That should cut it right?

Well, this view tends to underestimate the German cross-border consensus on sound money and budget discipline. And from today's Die Welt we learn that the SPD has retreated from its previous support for Eurobonds, thereby distancing themselves from their French counterparts. Thomas Oppermann, the party’s speaker in the Bundestag said:
"We oppose the uncontrolled pooling of debt… There is absolutely no need for general eurobonds". 
Oppermann added that:
“I speak for [Germany] and not for France”.
And there you have it from the horse's mouth...this will be a long, unpredictable debate in Germany.


Rollo said...

Long but predictable. Eurobonds will attract a coupon worthy of the weakest states but will have to be supported by the strongest: Germany. And Germany will not guarantee the continent's debt.

Rik said...

Some other points:
Rating agencies will likely rate them at the rating from the weakest.

In Holland both now (pre-election) as well after the elections parties roughly representing 2/3th of the seats in parliament are against. And all countries will have to sign up.

Anyway simply a waist of time and the ideal method to get the German population against the total rescue.

Anonymous said...

Prof. Franz Mayer a consitutional lawyer who represented the German government during the EFSF trial at the Court of the Constitution in Karlsruhe wrote an essay that concluded that eurobonds are unconstitutional with respect to the Lisbon Treaty (art. 125) and the German Basic Law. And since a chnage of the Lisbon Treaty would be necessary, he assumes that it would take at least ten years to set the ground.

Rik said...

Another point.
Look at the economics in Germany, Holland etc.
Eurobonds mean that German interest rates will go up and likely considerably. German rates are now say 2.5-3.0% lower than the EZ-average.
Part is caused by the crisis. And interest is so low anyway because of the crisis and the ECB reaction thereon.

Say in general interest would go up for business and private borrowers with 1-2%.
What would that mean:
1. Mortgage get considerably more expensive likely with downside pressure on RE-prices and less consumption to pay for it;
2. Businessloans get more expensive meaning less investments;
3. Private loans as well meaning lower consumption.

All negatives and together of a magnitude that is likely to reduce German structural growth with may be a 1% (of GDP)(or even more).

Basically it would mean that the German economy would go structurally stagnating. The Dutch would certainly.

No politician would like to be blamed for that.
The discussion is not yet held on this level, it is mainly held from a more moral perspective and on the priciples of the treaty (no bail out). But if the calculations are made imho you would see nearly everybody back off. You would kill off your own economy and you donot want to be blaimed for that politicians in general have already a very low credibility.

Rik said...

Dutch PM has stated that he will 'certainly' veto Eurobonds even if Germany, Finland, Austria would accept it.