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Wednesday, September 11, 2013

No fundamental change in eurozone policy after the German elections

Today we released an in-depth briefing on the German elections, and their implications on the eurozone. The top line: don’t expect any fundamental change in Germany’s eurozone policy after the elections.

Of the nine proposals being floated to pull the eurozone out of crisis, we expect clear movement in only one or two areas, including the most important but most unclear one: the proposal for a single eurozone resolution authority for banks.

Moreover, Germany is unlikely to depart from its emphasis on ‘sparkpolitik’ or austerity. Any change here will be largely superficial: a continuation of same policies wrapped up differently. This is based on Germany desire to ‘lead by example,’ and the broad support for austerity enjoyed among the German public.

The German insistence on structural reforms, and strong controls on taxation and spending of other eurozone states won’t change either. A government lead by Angela Merkel, could, however, push for a formalised “competitiveness pact” where by struggling eurozone countries commit to reforms  in return for aid.

The question of debt pooling will remain a contentious one  –  with the recent Open Europe/ Open Europe Berlin poll, conducted by YouGov Deutschland, showing that 64% of Germans are opposed to such a step. A debt redemption fund, as has been proposed by the influential Council of Economic Experts that advises the government, may be a possibility – however, this won’t be without opposition.

See our table below (click to enlarge) which breaks down and analyses the key eurozone policy areas on a party-by-party basis, detailing if we can expect to see movement after the elections:


Rik said...

The policies as such might not change much, however it is hard to see that in the next term no important calls have to be made re the Euro.
Merkel is very careful here, but the SPD and the Greens are going full throttle on this one. Which could end up in 2 ways, say on the Eurobonds issue.
Agree with more costly measures than Merkel would have done by herself is one. And tear Germany deeper into the mess than it already is.
Running into a referendum is the other (which they will hardly survive). Which looking at the polls would be an end of the EZ in its present form.

SPD is of course opposition rhetoric and likely not considered properly as well. And I wouldnot be surprised even if the SPD/Green would alone run the show that in government they move to the line Merkel.

Merkel's strategy is unlikely to solve the structural problems. Very likely that next term the tensions that will get stronger because of that will demand a strategic call as said. Will be a make or break moment.
-There will very likely be cuts in national budgets becuse of OSIs for instance.
-You cannot keep selling the Euro when the South as it likely would be the next decade or so would be in a sort of permanent recession.
-Transferpayments might be required even outside OSIs. Which would put a lot of pressure in national political systems.

Policies might not change so much, but Merkel at least is not messing things up. Steinbruck (again as said from his opposition rhetoric) is much more likely to do that (similar Greens btw).
The EZ seems to break apart longer term one way or another (simply no electoral platform in all essential countries both donor and receivers), but that process should be managed very carefully. While Merkel seems not able to make hard calls and goes always for certain and that will most likely come to an end, Steinbruck and the Greens might mess things up completely if the present rhetoric is any guide. They seem simply not able to manage the dossier properly and likley create a terrible mess.

Anyway most likely new scenario would keep Merkel at the helm so not likely to happen. But doubtful on her as well if she is forced to make real strategic choices. As she likely will be required to. She simply doesnot seem to oversee the whole playingfield.

-German policies simply only buy time and are not sustainable longer term;
-Probably choice between gun ho Steinbruck/Greens messing things up uncontroled or Merkel not overseeing the thing. Both are hardly ideal);
_Merkel is very likely to run this show however over the next term;
-Anyway next term very likely strategic decisions will have to be made with huge impact nationally (also in other countries). Cannot keep buying time/kicking cans, put your head in the sand.

Anonymous said...

It should probably read "Sparpolitik" instead of "sparkpolitik". It really has nothing to do with a "spark".