Germany's Bundestag votes in favour of stricter benefits rules for EU migrants

The German Bundestag today approved changes to the country’s Immigration Act which are meant to prevent the abuse of EU free movement. This is not yet a done deal as the Bundesrat - the German upper house - needs to approve the changes, and the grand coalition doesn't have an automatic majority there.

Re-capping our previous blogs on this, here are the key proposals - none of them will involve changes to EU law, according to the German government:

Six month maximum stay for EU job-seekers: Jobless EU migrants seeking work in Germany, who don't have sufficient means of supporting themselves (including health insurance) and have limited job opportunities, will be forced to prove after six months that they have a "reasonable chance" of being employed. Otherwise, they will be forced to leave. Exactly how this will work in practice is unclear. This is very similar to what the UK Government already is doing.

Five year re-entry bans: EU migrants abusing EU free movement (by forging documents or being in a fake marriage, for example) will face a re-entry ban of five years. 

Linking child benefit payments to national tax ID numbers: to avoid duplication of payments to EU migrants - which will only apply to EU migrants, not German citizens (which raises a number of questions and which may well be challenged at the ECJ, depending on the outcome of some pending ECJ rulings). 

€225m (€200m of this was already agreed) in financial assistance to help local authorities to deal with migration (€140m would come out of the European Social Fund). 

Interestingly the report that served as basis for the draft law also has a section on “possible further measures on the European level” which notes that:

“Also in other [EU] member states…the issue is debated, in parts very controversially. In this respect the question arises….if and in how far considerations for further steps on the European level or together with European regulations are necessary and reasonable. The Committee will deliver an opinion on this in its final report.”

There are two separate cases referred from German social courts to the ECJ to keep an eye on. The first ruling - relating to the access to benefits for “economically inactive” EU migrants - will be delivered on 11 November and Angela Merkel stressed already that she "spoke with David Cameron and we are both anxious to receive the verdict and we will interpret it together."

Merkel: If you want more Europe, be prepared for EU treaty change

Angela Merkel this morning delivered her first Europe remarks at the helm of the new German Grand Coalition. It wasn’t a “Europe speech” per se but rather her usual pre-EU summit briefing in the Bundestag - although it undoubtedly had a bit more meaning since it is the first under the new coalition.

Two key points stood out to us:

First, she wants a Eurozone “banking union” to be agreed – and possibly up and running – at some point during 2014. However, as we noted in our pre-German election briefing, and which is most certainly being borne out by events, this is a watered down, very German version of banking union. This was clear from last night's (partial) deal on banking union (more on this later). So if you’re the typical Anglo-Saxon economist hoping for a big, joint backstop – don’t hold your breath. This one will be messy.

Secondly, she again hinted at EU treaty change. It’s interesting that Merkel just won't let that idea go. She said,

“Those who want more Europe, also have to be prepared to reregulate new competences…We have a situation in Europe where everyone says, ‘We can do everything to evolve, but they one thing we can’t change are the treaties.’ I don’t think we will develop a Europe that functions in this manner.”  

Third, Merkel again pushed for so-called "reform contracts" arguing:

"It is necessary to ensure that the required structural reforms are pushed through...[there must be] contractual agreements...We will be discussing such contractual agreements at the European Council for the umpteenth time... [I expect] to see progress."

Translation: if you want us to underwrite the euro, we need 'see-you-in-court' style supervisory powers, firmly grounded in law. That means, EU treaty change.

When it comes to Europe, Germany’s political elite and public are deeply divided

On the question of Europe, there is a painful gap between the German political elite and the public.

As our recent YouGov Deutschland poll on German voters’ sentiments on Europe showed, the German public is overwhelmingly against further financial support for the eurozone, and believes that the next Chancellor should back efforts to devolve powers back to the member states.

Now, German business-publication, Deutsche Wirtschafts Nachrichten, has conducted a similar poll among all 620 members of the German Bundestag. It’s interesting to compare the results:

• Our poll finds that two thirds of Germans reject any eurozone policies that involve putting any more German money on the line: whether it is further loans to the eurocrisis states, debt write downs or debt pooling.
• On the question of joint-liability, DWN finds that two thirds of MPs advocate precisely those measures that are rejected by two-thirds of citizens: bailouts, debt reduction and debt redemption funds.
• Our poll finds that by a margin of two to one (50% in favour, 26% against), the German public thinks the next Chancellor should back efforts to devolve EU powers back to the member states.
• DWN’s poll finds that only 9% of MPs want to devolve power back to the member-states, with 91% saying that more power should go to Brussels.

Unless the German government finds a way to address this imbalance, then it might have a lot more than disgruntled Southern Europeans to deal with post-election.

Germany's anti-euro party may still yet make it into the Bundestag

Don’t think the German elections are a done deal – and, in particular, don’t rule out Germany’s anti-euro party, Alternative für Deutschland.

Though Merkel’s CDU/CSU is doing well the polls – as has been noted – her party could still flunk this one. German election surveys are notoriously  unreliable – and in the past, the polling figures for the CDU/CSU in particular, have tended to be higher than the actual election results. The central scenario for the new German government is still definitely a CDU/CSU-FDP coalition. However, a grand coalition of CDU/CSU-SPD is very much on the cards. If the FDP fails to get into the Bundestag, we could even be looking at a SPD-Green coalition – but that’s still unlikely.

The thing to remember is that the share needed to secure a majority in Bundestag isn’t the same as overall support in the polls, as the votes below the 5% threshold  parties need to win seats in the Bundestag will be dropped, while some seats are actually first past the post. So it’s not all that straightforward.

One interesting question, though: will Alternative für Deutschland shock Europe and make it into the Bundestag? A Forsa opinion poll for RTL/Stern today put the party on 4% .

This means we’re very close to a scenario where AfD is in and FDP is out. The assumption so far – including initially from us – was that AfD would struggle to get above 5%. Its window would instead be the European Parliament elections (without 5% threshold and possibly following a series of tough decisions in the Eurozone). However, we’re not confident of that any longer. Before the Italian elections, we predicted that Beppe Grillo’s (at least semi anti-euro) Five Star Movement would do better than many assumed. Deja Vu?

Possibly.

First, there are a huge number of swing voters swirling around Germany – over 30 per cent are undecided according to some polls, with one recent one even claiming 72 per cent. We literally have no idea where all these votes will go, but they could prove favourable for AfD. They could, of course, also go against the party.

Secondly, polls can easily underestimate the strength of  a new, protest party – as in the case of Grillo. Online polls tend to put AfD higher than polls conducted over the phone, suggesting that voters are still embarrassed to actually admit publicly, and to pollsters, that they'll vote AfD. German polls aren’t actually that great at predicting outcomes, for various reasons.

Now, AfD won’t do a Grillo  - who absolutely exploded onto the scene. However, a lot more sensational things have happened in politics than AfD landing a spot in the Bundestag.

We won’t call this one either way.

ECB gears up for German Constitutional Court scrutiny

This is set to be an important week for the ECB and therefore the eurozone.

As we noted in a flash analysis this morning, the German Constitutional Court (GCC) will hold a hearing on the 11 and 12 June focusing on whether the ECB’s policies have infringed either its own or the Bundesbank’s mandate, and if these have created fiscal risks without democratic approval.

The focus of the case will be the OMT, the ECB’s flagship bond buying programme, the announcement of which is widely seen to have played an important role in easing the eurozone crisis.

Why is the case important?

1. Highlights the tensions at the heart at the eurozone: the case is a microcosm of the wider debate as to whether Germany is willing and able (in terms of legal constraints) to do what is seen as necessary to save the eurozone. It also puts pay to the idea that once the German government has a fresh mandate following September’s election, there will be a swift move towards more eurozone integration – these legal questions will remain and will continue to crop up.
2. Pits the ECB against the Bundesbank: linked to the point above but this is also a very awkward division within the eurozone architecture, as personified by the confrontation of the ECB's Jörg Asmussen on one hand and Bundesbank President Jens Weidmann on the other. The Bundesbank will likely have to keep implementing ECB policies despite it now being well known that it fundamentally disagrees with them. 
3. Further constraints on crisis policies: in the end, the GCC will likely rule in favour of the ECB. However, as with previous rulings, it could set out red lines and restrictions to protect the German Constitution – this could throw a new element of risk into the crisis.
4. Increased transparency on ECB actions: this is something which we, and others, have been calling for for some time. One benefit of the case is that it has increased scrutiny on the OMT with the ECB now admitting it may be forced to published the legal documents which will layout the practical functioning of the OMT. This could generally be beneficial, although if markets do not like what they hear then it could actually contribute to market jitters.

With this final point in mind, there was an interesting story in FAZ over the weekend, which suggested that the OMT is not in fact as “unlimited” as had first been thought. Indeed, FAZ claimed that it is limited to €524bn, since the ECB will only be allowed to purchase debt with maturity between one and three years.

This constraint was always known, as we noted when the programme was announced. The cap essentially arises because this is the total amount of debt from Italy, Spain, Ireland and Portugal (i.e. those countries most likely to access OMT). The cap doesn’t seem to be hard and fast then, since countries could simply issue more short term debt. However, this does come with its own risks (another point we raised at the time), and the ECB has suggested it would look to prevent such an approach, although it hasn't said how.

Handelsblatt goes even further, suggesting that there is an internal rule which limits the ownership of bonds by the ECB to 50% of the given market, suggesting this means the cap is even lower at €260bn.

But even if the cap isn't quite what it’s cracked up to be, it’s very interesting that the ECB itself is selling it to the GCC as a limit. Clearly, there is some concern about the outcome on its part.

Despite a definitive ruling not expected until the end of the summer at the earliest, and more likely after the September elections, there could well be plenty of interesting revelations and disputes aired over the next few days, which we will of course be covering in detail.

This is welcome stuff: David Lidington says national parliaments could be given a 'red card' over EU proposals

National Parliaments' should be allowed
to show the EU the red card

This is an idea that's very close to our hearts - and an idea that we have promoted for a very long time.

The first bits of UK Europe Minister David Lidington's interview with German daily Die Welt have just been published on the paper's webpage. We'll have to wait until tomorrow to see the full version. But from what we can see so far, Lidington's interview is likely to reverberate quite a bit across Europe.

He said,

"Perhaps we should lower the threshold for national parliaments to take action against initiatives from Brussels; perhaps we should introduce the principle of a 'red card' so that a given number of national parliaments can block initiatives from the [European] Commission."

Sounds familiar? Well, the 'red card' was first advocated by Open Europe in 2011 in our report 'The case for European Localism'. And again by Lidington's PPS Tobias Ellwood MP in a publication for Open Europe in December 2012, where he argued:

"Any future [EU] Treaty change should include some system of the red card system with the right quota and powers."

A red card is an improvement over a yellow

Open Europe's Director Mats Persson pushed the idea in the Telegraph here in January. Under the Lisbon Treaty, if a third of national parliaments show the Commission the current 'yellow card', the Commission is obliged to reconsider its proposal and explain why it wants to change it, scrap it or push ahead with it. To date, the Commission has withdrawn a proposal in only one case after being shown the 'yellow card' - the so-called 'Monti II' Regulation on the right to strike.

However, this provision has several weaknesses. First, it doesn't oblige the Commission to actually drop the proposal, but only to reconsider it. So it's a far cry from a veto. Secondly, it's only supposed to happen on 'subsidiarity' grounds - and not on 'proportionality'. Thirdly, a third of parliaments are supposed to agree within an eight-week window, meaning that if the Commission tables a proposal in August or September - when most parliaments are in recess - it can basically push ahead with anything.

In other words, it really doesn't do that much to close the EU's infamous democratic deficit. Nor to strengthen the powers of national MPs - an aspect which, as we've argued repeatedly, is absolutely vital if the EU is to regain democratic legitimately.

Therefore, a 'red card' provision giving a certain number of national parliaments acting in unison (the threshold needs to be discussed) an actual veto right, would be an absolutely massive improvement. This is also an area where the UK will have support from Germany and others if it pitches it right.

In the interview, Lidington also pointed out that several times in the past,

"the content of [EU] treaties has been interpreted in a way which was not desired or expected at the time the treaty changes were decided on. Sometimes, the European Commission or the European Parliament try to expand the boundaries of their competences." 

The Europe Minister also stressed that the EU's single market for services is "painfully underdeveloped". echoing similar remarks on the importance of deepening the single market before. However, this time they come after he said that Open Europe's proposals to reignite the EU's services sector and boost EU-wide GDP by up to €294bn were "interesting" and "worth exploring".

More please!

Aufstand im Bundestag: Who are Germany's most rebellious MPs?

On Thursday, the German Bundestag is expected to vote on the Cypriot bailout. The package is likely to be approved with a clear majority - the opposition SPD and Greens will mostly back it. In addition, the symbolically hugely important "chancellor's majority" - the threshold for the government to get an absolute majority with only the votes of its own MPs - is likely to be reached as well. Only around 12 MPs from the coalition parties (CDU, CSU, FDP) are likely to vote against. This is not particularly surprising. Remember, the bill for this rescue package was largely passed on to Cypriot depositors, and therefore enjoys much greater support in Germany.

Still, with the eurozone bailouts remaining ever-so contentious - and with a new anti-euro party on the German political scene - we thought we'd see how many coalition (CDU, CSU and FDP) MPs have so far rebelled on the various eurozone bailout votes. 

As the table below shows (click to enlarge), according to our calculations, at least 36 MPs have rebelled against Merkel on at least one occasion. Four MPs - Klaus-Pieter Willsch & Manfred Kolbe (CDU), Peter Gauweiler (CSU) and Frank Schäffler (FDP) - have a 100% record in rebelling on eurozone votes - for the rest, there's a surprising spread.

The death of the Bundesbank? Germans come out swinging against ECB bond-buying

Although Jens Weidmann may have been alone on the ECB executive board in opposing yesterday’s ECB decision to buy government bonds, he looks to have the full-force of German public and media opinion right behind him. Over the last 24 hours, the German media, with surprisingly few exceptions, has fired a broadside against the ECB. No holds barred. Mario Draghi may have pleased markets, but he now has a very frustrated Germany – whose taxpayers are implicitly underwriting his institution (and the euro) – on his tail.

One of the most interesting reactions came from the Bundesbank itself, which unusually issued a public statement which ran directly contrary to the ECB’s decision. A Bundesbank spokesperson said:

Weidmann regarded the bond purchases “as being tantamount to financing governments by printing banknotes,” adding, “The announced interventions carry the additional danger that the central bank may ultimately redistribute considerable risks among various countries’ taxpayers.” 

Süddeutsche Zeiting’s Marc Beise has a blistering piece, crediting “Weidmann’s persistent opposition” as the reason why the ECB is ‘only’ buying short-term debt. But, goes on to argue, “Saving the euro is worth a lot of effort but there are two important limitations. A euro rescue at any price can be a disaster economically, that is the red line that must not be exceeded. The other limit is the law: never in a rules based community can the end justify the means. A Euro-community based on breached contracts will always be based on fragile foundations. On Thursday, the ECB has unfortunately crossed both these red lines.”

Meanwhike, Die Welt led with the headline “Financial markets celebrate the death of the Bundesbank”, adding, “For Germany, the nightmare begins. There it was: the word that everyone was waiting for: unlimited…ECB President Draghi brazenly breaks with the principles of German monetary policy.” Bild runs with a similarly eye-catching headline, warning against "Draghi's blank-cheque for debt-states".

FAZ's editor-in-chief Holger Steltzner also took a strong line, saying, “In the eurozone there isn't any division any more between monetary and fiscal policy…We should be curious to hear what the German Constitutional Court thinks about that.”

The warning on the German Constitutional Court is an interesting one (a topic we’ll discuss in future posts) but some politicians went even further, with Hessen Europe Minister Jörg-Uwe Hahn of the FDP and CDU’s Klaus-Peter Willsch (already the initiator of one of the ESM complaints to the German Constitutional Court) calling for the German government to seriously consider taking the ECB to the European Court of Justice for violating its legal mandate.

The ECB wasn’t the only institution on the receiving end though, with the German government and Chancellor Merkel also taking flak. Handelsblatt's deputy editor in chief, Florian von Kolf wrote, “Today is a black day for democracy…Merkel is silent…seemingly happy to have been partly relieved from her here Sisiphus task to save the euro”. DPA reports that SPD parliamentary leader Frank-Walter Steinmeier argued that the ECB’s decision is the “documentation of Chancellor Merkel’s failure...[while Weidmann] protests but Merkel gives the green light”, while the Green party decribed the CDU and FDP opposition as “hypocritical” since it was their failure to take any significant decisions on the crisis which forced the ECB to act.

We’ll continue to cover reaction throughout the day on the blog so stay tuned, but we can’t help but recall all those times we warned that saving the euro at any cost could drive a wedge between countries rather than bringing them closer together…

You're wrong, Signor Monti: National parliaments are not the problem - they're the solution

Italian Prime Minister Mario Monti has launched a diplomatic offensive in Germany, involving several interviews with the main German dailies. However, he made a faux pas while talking to German magazine Der Spiegel. Monti said,

"If governments allow themselves to be completely bound by the decisions of their parliaments without maintaining some room for manoeuvre in international negotiations, then a break-up of Europe will be more likely than closer integration."

Excuse us? An unelected technocrat instructing national governments to ignore their parliaments? Whatever Monti tried to achieve with these remarks, it didn't work. And he has already experienced a backlash in Germany, where if anything, there's close to a cross-party concensus over the need for giving the Bundestag more oversight not less, in the wake of the eurozone crisis and the multi-billion euro bailouts. The various rulings handed down by the German Constitutional Court during the eurozone crisis, demanding a stronger role for the Bundestag, also shows how Monti is messing with some pretty fundamental democratic settlements (see here, here, here and here).

Unsurprisingly, Monti has attracted criticism from across the German political spectrum. German Foreign Minister Guido Westerwelle (from Merkel's junior FDP coalition partner) said,

"Parliamentary control over European policy is out of any discussion. We need to reinforce, not weaken, democratic legitimacy in Europe."

Alexander Dobrindt, the Secretary General of the CSU (the Bavarian sister party of Merkel's CDU) was far less diplomatic,

"The greed for German taxpayer money is blossoming in undemocratic ways with Mr Monti...We Germans will not be prepared to eliminate democracy in order to finance Italian debts."

The deputy leader of the opposition SPD faction in the Bundestag, Joachim Poss, suggested that the "unspeakable Berlusconi years" had undermined the image of parliament in Italy, and added,

"The acceptance of the euro and its rescue is strengthened through national parliaments and not weakened." 

The en plein of rebukes was completed by the European Commission, with spokesman Olivier Bailly saying (have they started to learn?),

"The European Commission respects the competences of national parliaments."

All of this led Monti to clarify his stance in a communiqué:

"I just wanted to stress the need to maintain a continuous and systematic dialogue between [national] governments and parliaments, in order to make steps forward in the process of European integration." 

But Monti's remarks give testament to a most concerning elitist mentality, which has all too often been evident in the history of European integration: democratic scrutiny is a nuisance that should be avoided wherever possible. If he thinks that the Europe that emerges from the eurozone crisis can be built on backroom deals struck between a handful of EU leaders, under the radar of national parliamentary scrutiny, he may be in for some very unpleasant surprises. Continuing down that road will result in the rise and rise of some seriously populist, anti-EU parties as voters look for alternatives. The baby will have been thrown out with the bathwater.

National democracy is not only a matter of principle but also serves a practical purpose: actions and policies that enjoy democratic legitimacy have a far greater chance of standing the test of time. Therefore, national parliaments are not the problem in the eurozone crisis, they are a big part of the solution to it.

Ironically, as he struggles to push reform measures thorugh his own parliament, Monti may soon realise just how wide of the mark his comments were.    

Fresh details on the Spanish bank bailout... again from abroad

We assume many Spaniards are growing more and more frustrated with the fact that they have to dig into the websites of foreign governments and parliaments to find out details of the bank bailout their country is set to receive. After the 'confidential' EFSF proposed timeline we took from the website of the Dutch finance ministry and analysed on our blog, new information emerged from the dossier the German finance ministry prepared from German MPs ahead of today's vote on the Spanish bank bailout in the Bundestag (available here).

The 139-page dossier includes a "Master Financial Assistance Facility Agreement" - never seen before - between Spain, the Spanish national Orderly Bank Restructuring Fund (FROB), the Bank of Spain and the EFSF. The draft agreement confirms that, as expected, once the eurozone's permanent bailout fund, the ESM, takes over, the loans Spain receives will not become senior to Spanish debt held by private investors.

However, the most interesting part (see page 78 of the dossier) concerns the fact that, in principle, Spain could request that part of the €100 billion rescue package be used for purposes other than bank recapitalisation - including direct loans to the Spanish government and purchases of Spanish debt on both the primary and the secondary markets.

In other words, if it turns out that Spain does not need the entire amount to sort out its troubled banking sector - which the government has suggested will be the case (although we don't agree, see here) - it could, for instance, ask its eurozone partners to use the cash left to buy Spanish bonds and try to keep its borrowing costs down.

This would imply a revision of the Memorandum of Understanding (MoU), which would almost certainly include tougher conditions - probably directly relating to government spending and reforms as well. All very speculative at the moment, but it's still interesting that the agreement opens for Spain seeking something closer to a fully-fledged bailout deal.

A European Commission spokesman has just told reporters in Brussels,

"The up to €100 billion, which the eurozone has undertaken to provide to Spanish banks is to do just that, it is only for that purpose and not for any other."

This seems to be only a half-truth, though. In fact, the draft agreement does indeed specify that, for the moment, the entire amount is being provided in the form of a "Bank Recapitalisation Facility". However, the document also establishes that Spain can make an official request to move part of the money to another facility, provided that the combined total does not exceed €100 billion. 

In any case, the bailout agreement will be wrapped up by eurozone finance ministers in their conference call tomorrow. Meanwhile, the day has not started well for Spain. In this morning's debt auction, almost €3 billion of medium and long-term debt was sold, but with higher interest rates and significantly lower demand than in the previous auction. The interest rate on Spain’s ten-year bonds reached above 7% again – a level widely seen as unsustainable.  

All this happened while Spanish Treasury Minister Cristóbal Montoro (in the picture) was telling MPs that “There is no money in the public coffers to pay for services.” As usual, you can follow the latest developments of the eurozone crisis via our Twitter feed @OpenEurope.

Is the EU really like 27 garden gnomes?

We've been making a concerted effort here on the OE blog to bring you many of the more memorable quotes from the eurozone crisis, and we've had at least one more following a debate in the German Bundestag ahead of tomorrow's European Council summit.

As expected there was a lot of anxiety about potential debt pooling. From CSU MP Gerda Hasselfeldt, for example, who said that calls for a pooling of liabilities between eurozone members would be:

"a betrayal of German interests... It would not be right for the deposits of German savers to be put at risk from the misconduct of banks in other countries” 

Meanwhile, speaking to journalists before the debate, FDP leader Rainer Brüderle slammed the present state of the EU, claiming that:

"The whole world is laughing its head off over these 27, soon to be 28, garden gnomes that are trying to play global politics but can't even get their own act together."

Brüderle, renowned for his tendency to shoot from the hip, had to row back when asked if he counted Angela Merkel among these gnomes, saying that the comment had not been directed at any one individual.

Combined with Merkel's comments yesterday that there would be no shared total debt liability for as "long as she is alive", the mood in Germany is certainly feisty ahead of tomorrow's summit...

Will Merkel's fiscal treaty become a hostage of the FTT?

As we reported in yesterday's press summary, given that the recently signed 'fiscal treaty' will impact on the budgetary autonomy of the Bundestag, it will have to be ratified in both houses of the German Parliament by a two-thirds majority.

Here are some basic Bundestag mathematics: out of a total of 622 MPs, Merkel's coalition has 331 (195 from CDU + 43 from CSU + 93 from the FDP), far from the 415 MPs necessary for the two-thirds majority. So Merkel will definitely need to have some of the SPD's 146 MPs on side, and would also like to be able to count on the Greens' 68 MPs just in case. The remaining opposition party, Die Linke rejects the very premise of the treaty so all its 76 MPs are highly likely to vote against.

However, the SPD and Greens have already said their consent is conditional on a number of concessions from Merkel, most notably: a 'growth programme' to balance out the budgetary discipline element of the treaty and the introduction of a financial transaction tax (FTT - its not clear if they want it in just the eurozone or the EU as a whole, although the latter looks impossible). The SPD’s leader, Sigmar Gabriel told German radio that:

"Whether we vote in favour or not depends on whether Mrs. Merkel makes substantial offers to improve the fiscal pact. I can only urge Merkel to finally take care to ensure that her government ceases to oppose the taxation of financial markets.”

This has not gone down with the FDP, who have long been opposed to a FTT unless imposed across the whole EU as minimum. The party’s General-secretary Patrick Döring described the prospect of tying the ratification of the treaty to the introduction of an FTT as “inconceivable” and “irresponsible”, while parliamentary faction leader Rainer Brüderle criticised Gabriel, arguing that:

"This is no place for ideological battles for the purpose of winning future elections. The situation demands statesman-like responsibility from all concerned."

As things stand there is a classic stand-off over the issue, with significant risks for all parties concerned:

Giving in to demands for a FTT or weakening the budgetary discipline in the treaty further, would undermine Merkel's support within her own party and threatens to split the coalition - which could trigger early elections. That said, the threat of early elections may be just enough to keep the FDP in check given their dismal recent poll results. It would also cause huge problems for Merkel in Europe given that she has expended so much political capital on pushing this treaty through.

The SPD and the Greens are far from cohesive on all issues either and getting embroiled in a full debate on this issue could expose flaws in this fledgling partnership. Furthermore, the German public seem to be losing patience with politicians inability to tackle the eurozone crisis - further posturing on the issue for political gain could easily backfire.

In the end then consideration of these risks and the trend for orderly consensual politics in Germany means that the approval of treaty still looks highly likely, posturing aside. Nonetheless it looks as if Merkel will have to offer the opposition some concessions (e.g. the FDP have indicated they could stomach a watered-down FTT along the lines of the UK’s stamp duty). The extent of these could have a big impact on the power base of the current government and the outcome of the next election.

The vote itself is not scheduled until the 25th May, so there is 'plenty' of time for the party leaderships to hammer out a deal between themselves and present it to their MPs to be rubber-stamped...

Burying parliamentary scrutiny?

The picture on the left is not some random shot to illustrate excessive bureaucracy, it's literally the document setting out the details of the second Greek bailout package, which German MPs just voted on.

Not exactly bed time reading.

As expected, the Bundestag voted to approve the package, by 496 votes in favour compared with 90 against and 5 abstentions. We'll provide a breakdown of the votes alongside some further analysis in due course.

While approving the deal, many MPs were unhappy (Die Linke's Kathrin Vogler specifically raised the issue) about having had only a few days to read through, digest and then analyse a document which came to no less than 726 pages, including hugely complicated issues such as explaining different options for bond swaps, how the swap would work and the impact on Greece's debt sustainability (and therefore the risk to German taxpayers).

The agreement was only reached in the early hours of Tuesday morning, and the Bundestag's budgetary committee only looked into the details on Friday, meaning ordinary MPs only got hold of the documentation over the weekend.

This begs the question, how in the world are MPs supposed to fulfil their role scrutinising the decisions reached by governments. The bailout took eight months to organise, now MPs were expected to approve it with a weekend's notice (at least with respect to the details). Given the number of unanswered questions and heroic assumptions on which the agreement shakily rests, this is a pretty scary situation.

In fact, if this is the future of parliamentary/constitutional democracy in the eurozone, you'd forgive national parliaments for believing that is a price not worth paying for keeping the eurozone intact.

STOP! Bild pumps up pressure on German MPs ahead of vote on second Greek bailout

With the debate ahead of the Bundestag vote on approving the second bailout package for Greece due to get underway in 30 min or so (as ever we will be covering the event live on our twitter page @openeurope), Germany's biggest selling tabloid, Bild Zeitung, has upped the ante calling on MPs to vote against the package.

Under the brilliantly simple headline "STOP" (see picture above), Bild writes:

"Once again, it's payday in the Bundestag. €130 billion are meant to save Greece from ruin. Bild appeals to all MPs, do not proceed with this folly!"

The entire page 2 of the paper then features a range of interviews with economists, such as the German Guru Hans-Werner Sinn, explaining why Greece is a "bottomless pit" and why it "can't stand on its own two feet even with this bailout". The Chief Economist of Deutsche Bank, Thomas Mayer, says that a euro exit should not be "taboo" anymore.

It's pretty strong stuff.

Remember, as we've pointed out before, Bild is a huge paper - by far the best selling paper in Germany (far bigger than the Sun for example) and according to some measures, the paper with the widest circulation outside Japan.

In other words, it has a lot of political clout and serves as an important barometer of public opinion, which you mess with it at your peril. A poll in Bild Am Sonntag also showed that 62% of Germans are against the second Greek bailout (up from 53% in September).

But how many MPs, not including those who were already going to vote against, will be swayed? Given that the opposition SDP and Green party will back the government there is virtually no chance of the bailout being rejected, so the issue is how many coalition MPs will rebel, and whether it will be more than the 15 who voted against the expansion of the EFSF back in September.

If Merkel is unable to rely solely on her MPs to pass through the bailout, it will have serious repercussions for the continued viability of the government...

The Greek Crisis: Five Key Developments

The decision on the second Greek bailout has been put on ice until (at least) next Monday, but things are moving fast in and around Greece these days - so here are yesterday's five key developments in the Greek crisis:

• A new poll published by Greek magazine Epikaira confirmed that the Greek electorate is moving towards the extremes of the political spectrum. New Democracy - the centre-right party led by Antonis Samaras - is credited with 27.5% of votes, while former Greek Prime Minister George Papandreou's PASOK lags well behind with 11%. In total, the two 'mainstream' parties would therefore get 38.5% of votes. The Greek Communist Party, Democratic Left and the Radical Left Coalition (SYRIZA) are credited with a combined 43.5% of votes, but the first has ruled out entering a coalition with the other two hard-left parties. These results are clearly very significant, not least because they will give Germany, Finland and the Netherlands fresh impetus to argue that Greece's smaller parties should also provide written commitments to austerity. Unfortunately, as we point out in our latest briefing, at the moment it's quite hard to see any of these parties agreeing to such a request;

• PASOK's Michalis Chrysochoidis, Greek Minister for growth and competitiveness (definitely an unenviable post), told reporters in Frankfurt that his party is "in favour of an extension of the life of [Greek Prime Minister Lucas] Papademos’s government...Elections should take place by the end of the constitutional term in 2013." Incidentally, Germany, Finland and the Netherlands reportedly brought up the possibility of postponing the Greek elections during Wednesday's conference call of eurozone finance ministers;

• Greek President Carolos Papoulias' anti-Schäuble invective didn't go unnoticed in Germany. CDU MP Christian von Stetten yesterday said that, without the German Finance Minister, Greece would already have been bankrupt a long time ago. The Greek President's intervention, he went on, was "unthinkable" and "absurd". Most significantly, Mr von Stetten said that Papoulias' words would "certainly impact" on the Bundestag vote on whether to approve the second Greek bailout, due on 27 February;

• According to Die Welt, the ECB has started the announced swap of its €50 billion Greek government bond holdings for new Greek bonds. The ECB is swapping the bonds at their nominal value, meaning that it is making profits out of them. These profits will then be distributed via national central banks to eurozone governments, which will have to decide whether they want to return the money to Greece as part of the second Greek bailout. The swap will be reportedly completed by 20 February. We will expand on this specific point later;

• Separately, Schäuble is also said to have rejected the idea of providing Greece with a bridge loan to avoid the country defaulting on 20 March - when Greece needs to redeem €14.5 billion worth of its debt - and uphold the rest of the second Greek bailout until after the elections as a means to maintain pressure on Athens.

Lots of stuff going on, and not all is necessarily good news. As usual, if you want to stay on top of the eurozone crisis, we recommend that you check out the €uro-Zone section of our new website and keep following us on Twitter @OpenEurope.

A Pyrrhic Victory for Merkel?

The headlines tomorrow will say that the German Bundestag agreed to pass the expansion of the EFSF, and that Chancellor Merkel managed to get enough coalition votes to preserve her ‘Chancellor’s majority’; 315 in favour, 13 against and 2 abstentions. This meant she did not suffer the humiliation of having to rely on the votes of the opposition, which could have gone as far as bringing down her Government and triggering early elections.

So, indeed, a crisis has been averted and Merkel again showed signs of being a shrewd and canny operator (it was a while ago since we last saw such signs). She also displayed some pretty impressive expectation management skills, getting a bigger majority than many had anticipated.

However, the German public isn't exactly impressed. An opinion poll commissioned by Bild immediately after the vote hardly inspires confidence; only 6% of Germans believed that MPs understand exactly what it it is that they are deciding, while 47.5% did not believe they had an adequate overview of the situation.

There are still many questions to be answered and the road ahead remains uncertain. More than anything this demonstrates how the eurozone crisis has constantly frustrated politicians’ attempts to bring it under control by mutating rapidly while they are still dealing with its previous stages. Here we had the slightly absurd situation where the Bundestag was considering measures agreed by European leaders back in July to boost the EFSF’s bailout guarantees to €440bn, (Germany’s share will increase from €123bn to €211bn), while earlier this week it was reported that Eurozone and global leaders were in negotiations to increase the size of the EFSF to €2 trillion, possibly using a leverage scheme through the ECB.

As expected, the Budestag witnessed a feisty debate, with plenty of accusations flying around as to who was to blame. This however disguised the fact that of the five parties, only the left-wing ‘die Linke’ was wholly opposed to the EFSF expansion (on the grounds that it was a bailout for banks and not citizens), while the coalition CDU/CSU and FDP parties argued for it begrudgingly, and the opposition SDP and Green Party argued the measures did not go far enough. The unifying factor was a feeling that Germany had done very well out of membership of both the EU and the Eurozone, and that it had a responsibility to ensure stability and support struggling members.

However, how far this solidarity should go, and what institutional form it should take provoked the most disagreement. Let's remember that today's vote was mainly about exanding the scope of the EFSF - to allow it to buy govenrment bonds, precautionary lending and capitilse banks - it did also increase the lending capacity to €440bn (as it was originally meant to be) but did not push the size of the fund any further - as many have recently been calling for.

What became clear during the debate is that Merkel used up a lot of political capital persuading coalition MPs, who railed against fiscal irresponsibility, and transfers of debt between member states to vote for the expansion. It was also evident that for many this was a line in the sand; they would accept the expansion of the bailout fund, but no additional measures. The FDP’s Rainer Brüderle, former Minister for the Economy insisted that:

“The rescue mechanism must not be allowed to become an investment bank… Germany must fulfil commitments under Lisbon treaty but in future structural changes must be enacted to prevent unfair transfers”

Brüderle also raised the spectre of hyperinflation, something the FDP in particular are very concerned about. Germany’s finance minister Wolfgang Schäuble said that “the whole of Europe depends on Germany’s economic stability”, and about the tough conditions that Greece must meet in order to receive the next tranche of bailout funds. However not all coalition MPs were satisfied, with CDU dissenter Klaus-Peter Willsch arguing that “you can't fight debt with debt”, although the muted applause was an early indication not enough of his colleagues were prepared to back him in the vote.

The arguments adopted by the opposition were fascinating, in that they argued that the crisis had been exacerbated by the Government’s unwillingness to work with other European states. The SPD’s Peer Steinbrück argued Germans had lost faith in the Government because of its lack of leadership, while the Greens went even further, with senior Green politician Jürgen Trittin arguing that:

“Germany has a responsibility to Europe which it cannot renege on… the Government’s insular and eurosceptic tendencies have prolonged the crisis… Barroso was right [in his State of the Union speech yesterday] that the European Commission is Europe's economic Government, we need strong democratic EU institutions in this globalised era.”

His party colleague Priska Hinz argued that:

“We need more budgetary co-ordination, a Financial Transaction Tax, Eurobonds and if treaty changes are necessary to accomplish this then we'll campaign for them.”

So while the vote was easily passed by a 523 votes in favour and 85 against (with 3 abstentions), the preceding debate clearly demonstrated serious differences between the coalition parties, and to a lesser degree within them. Here are some key issues to look out for in the German debate:

• The issue of Eurobonds, enthusiastically backed by the opposition is an absolute no-go area for the coalition parties - but backed by the Greens and SPD that currently lead in the polls (illustrating how public euro discontent still is to filter through to party politics).
  

• Merkel needs to decide whether to revise the complex and flawed second Greek bailout, meaning there are still key battles that have yet to be fought within parties, between them, with other European partners and some of Europe’s largest financial institutions.

• The future role of the ECB will be crucial, specifically whether Germany can accept an expanded mandate for the bank, particularly through a larger bond buying programme, and whether the EFSF’s firepower will be increased by leveraging it through the ECB.

In other words, still plenty to play for...

German Parliament flexes its muscles

As we've highlighted before, a bust-up in Germany over the fate of the eurozone's bail-out schemes could be imminent, both on the EFSF and its permanent successor.

As if Merkel didn't have enough on her hands, the Bundestag yesterday approved a motion that explicitly demands that the German government bans the EFSF from buying government bonds from troubled eurozone countries. In effect, the Bundestag is asking Merkel to backtrack on last weekend's agreement between eurozone leaders which would have given the EFSF the mandate to buy bonds directly. That's a pretty big set-back for the Chancellor.

The motion isn't binding for the government, but still hugely problematic since the Bundestag needs to approve any deal to increase the scope and size of the EFSF.

The vote illustrates the growing gaps between Angela Merkel and parliamentarians belonging to all three coalition parties (CDU, CSU and the FDP). If this happend in the UK it would be labelled an outright "rebellion" against the government.

According to Märkische Allgemeine, the Bundestag gave its consent to a permanent eurozone bail-out fund, a European Stability Mechanism (ESM), which would take over from the EFSF in 2013. However, it attached a number of strings, including:

- strengthened stability and growth pact
- guarantees for the independence of the ECB
- safeguards that the ESM would only be activated in emergency cases
- a mechanism which would involve private creditors in the rescue fund (unclear how this would work)
- a restructuring procedure which would include private creditors
- a guarantee that the eurozone would not turn into a transfer union.

If you think about it, those are not small thing to ask for in the current climate. This one could be interesting.