No plan yet for the eurozone

  • 15 June 2012
  • From the section Economy
  • comments
Angela Merkel
The German government is not backing the eurobonds proposal

The panicked mood over Greece has increased the pressure on eurozone leaders, and inspired feverish talk of grand plans that might or might not be unveiled at the EU Summit at the end of this month - "if only Germany would agree".

After spending yesterday in Berlin, I can tell you the German government is mightily fed up with all this speculation - and fed up with getting blamed for everything bad happening in the global economy (last week's cover of the Economist, for example).

I interviewed the Deputy Finance Minister - Secretary of State Steffen Kampeter - after the German chancellor's strident speech to the Reichstag.

He made clear that on one major point - eurobonds - the speculation about what Germany might be willing to accept in time for the summit was simply wrong.

People had hoped that a watered-down, temporary version of common eurozone debt, dreamed up by Germany's so-called "wise men" group of economic experts, might be a runner for the summit.

The fact that the scheme would be strictly time limited, and involve only a portion of each country's debt, was more likely to make it legal in the eyes of Germany's constitutional court.

Mr Kampeter told me they had looked at the plan, and discussed it with their coalition partners and it wasn't going to work. It wasn't constitutional. End of.

'Credible commitment'

There are a few other clever eurobond plans out there (if you're interested, Breaking Views has a useful potted summary). It's still possible that Chancellor Merkel will manage to sign up to one of them, eventually.

But for now, at least, her speech didn't seem to leave a lot of wiggle room: she said the mutual debt schemes were both "unconstitutional" and "counterproductive".

It's tempting to see this as a cue for another round of Germany-bashing. We're surely going to see some of that on Monday, at the G20 Leaders' Summit.

But it's worth noting that even the Americans have this week softened their public rhetoric around Germany. Yesterday the US Treasury Secretary said it was "unfair to see Germany as the sole source of the problem". He, too, recognises that pushing Germany too hard could be self-defeating.

But there is a better reason for people to hold off criticising Chancellor Merkel: she is right.

Solving this crisis will ultimately depend on governments making a credible commitment to closer economic integration - credible because their people accept it.

Lest we forget, Mrs Merkel and her German colleagues are actually much more devoted to that long-term objective of integration than many of those now calling for rapid steps towards it.

In the view of German officials, their key eurozone partners are now so terrified by the crisis, they'd sign up to anything that might make it go away - long-term consequences be damned.

If you are Mrs Merkel, consequences matter. And so does process.

The temporary eurobond scheme is a case in point. It couldn't, in fact, be implemented quickly. Or neatly.

And since the mutualised debt would have to become a national responsibility again after 25 years, it might actually make the long-term mutualisation of eurozone debt harder to achieve.

The German chancellor is right that you're not very likely to reach a credible form of closer integration by lurching for the latest clever scheme from the academic think tanks, every time Spanish bond yields go up.

But her critics may well also be right, that the gravity of the situation demands a dramatic step forward, right now. That is what has made this crisis so scary from day one.