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| Version 1 | Version 2 |
|---|---|
| Angela Merkel risks German wrath with eurozone concessions | Angela Merkel risks German wrath with eurozone concessions |
| (about 1 month later) | |
| When Angela Merkel rushed back to Berlin for a crucial vote on the euro before the Bundestag's summer recess, the chancellor returned to headlines screaming "An assault on German savers" and "The night that Merkel lost". | When Angela Merkel rushed back to Berlin for a crucial vote on the euro before the Bundestag's summer recess, the chancellor returned to headlines screaming "An assault on German savers" and "The night that Merkel lost". |
| In Brussels she had made unusual concessions to the European Union's "Club Med" which left Spain delighted, Italy imagining it had won a points victory, and France's new president satisfied with his first substantive EU summit. | In Brussels she had made unusual concessions to the European Union's "Club Med" which left Spain delighted, Italy imagining it had won a points victory, and France's new president satisfied with his first substantive EU summit. |
| For those who view this endless euro crisis summitry as a gladiatorial zero sum game, Merkel lost this week. Not a common event in the 30 months of crisis that have thrust Germany into a difficult and unwanted role as the EU's indispensable power. The other way of seeing the summits is as a marathon round of muddling through; of bluff and counter-bluff resulting in mushy compromise. | For those who view this endless euro crisis summitry as a gladiatorial zero sum game, Merkel lost this week. Not a common event in the 30 months of crisis that have thrust Germany into a difficult and unwanted role as the EU's indispensable power. The other way of seeing the summits is as a marathon round of muddling through; of bluff and counter-bluff resulting in mushy compromise. |
| There was plenty of that in the decisions announced on the banks and bailouts on Friday. But the summit surpassed expectations by adding urgency to the effort to establish a new regime of eurozone bank supervision under the European Central Bank; by agreeing to try to break the damaging feedback loop between over-indebted governments and their weak banks by injecting funds directly into ailing banks; and, most radically and most politically dangerous for Merkel, by awarding private creditors the same status as the eurozone bailout fund in the Spanish rescue. That means German taxpayers will have to join the queue to get their money back. | There was plenty of that in the decisions announced on the banks and bailouts on Friday. But the summit surpassed expectations by adding urgency to the effort to establish a new regime of eurozone bank supervision under the European Central Bank; by agreeing to try to break the damaging feedback loop between over-indebted governments and their weak banks by injecting funds directly into ailing banks; and, most radically and most politically dangerous for Merkel, by awarding private creditors the same status as the eurozone bailout fund in the Spanish rescue. That means German taxpayers will have to join the queue to get their money back. |
| The German media were quick to howl that Merkel was putting the German taxpayer on the line for the success or failure of banks in Madrid. | The German media were quick to howl that Merkel was putting the German taxpayer on the line for the success or failure of banks in Madrid. |
| The last time Merkel performed a breathtaking U-turn she arguably went on to win the war. Over a dramatic weekend in May 2010, after weeks of insisting there could be no bailouts of single currency countries, she agreed to the first €440bn rescue fund. But ever since, she has dictated the terms of crisis management and rewritten the rules for the single currency (her fiscal pact being voted through the Bundestag on Friday). | The last time Merkel performed a breathtaking U-turn she arguably went on to win the war. Over a dramatic weekend in May 2010, after weeks of insisting there could be no bailouts of single currency countries, she agreed to the first €440bn rescue fund. But ever since, she has dictated the terms of crisis management and rewritten the rules for the single currency (her fiscal pact being voted through the Bundestag on Friday). |
| The past two days look like a similar battles-and-wars moment. She has been forced by the markets and by political manoeuvring among her peers to ease up on the Teutonic discipline and loosen the rules in order to bring down the costs of borrowing for the eurozone's vulnerable. | The past two days look like a similar battles-and-wars moment. She has been forced by the markets and by political manoeuvring among her peers to ease up on the Teutonic discipline and loosen the rules in order to bring down the costs of borrowing for the eurozone's vulnerable. |
| But she will now dictate the terms for that major concession, scripting the rules for the new banking regime that will need to be up and running before the more generous elements agreed can be enjoyed – with the exception of quick action on Spain. | But she will now dictate the terms for that major concession, scripting the rules for the new banking regime that will need to be up and running before the more generous elements agreed can be enjoyed – with the exception of quick action on Spain. |
| That will mean big fights over how to supervise, regulate and insure the eurozone's banks and savers in which the notion of common or pooled liability for winding up bad banks and guaranteeing the savings of the populations of 17 countries will be extremely contentious. Then there will be the issue of how many of the eurozone's 8,000 banks should come under the new regime. The Germans would prefer only two of their own and 25 across the eurozone. | That will mean big fights over how to supervise, regulate and insure the eurozone's banks and savers in which the notion of common or pooled liability for winding up bad banks and guaranteeing the savings of the populations of 17 countries will be extremely contentious. Then there will be the issue of how many of the eurozone's 8,000 banks should come under the new regime. The Germans would prefer only two of their own and 25 across the eurozone. |
| It will be at least a year, possibly several, before the "banking union" is operating properly. Merkel was at pains to stress it was a medium-term ambition and she would wield a double veto over how and whether the new move to direct bank injections takes place. | It will be at least a year, possibly several, before the "banking union" is operating properly. Merkel was at pains to stress it was a medium-term ambition and she would wield a double veto over how and whether the new move to direct bank injections takes place. |
| And in words aimed at assuaging the worries of German savers, she emphasised that the waiving of special creditor status for the bailout fund was strictly limited to the current Spanish bank rescue, meaning it would not be repeated elsewhere, for example if Italy's Mario Monti seeks to take advantage. | And in words aimed at assuaging the worries of German savers, she emphasised that the waiving of special creditor status for the bailout fund was strictly limited to the current Spanish bank rescue, meaning it would not be repeated elsewhere, for example if Italy's Mario Monti seeks to take advantage. |
| Under intense pressure from much of the EU, as well as the ECB, the IMF, and the European commission – as well as the Americans and the British – the German chancellor has shifted, not for the first time in the crisis, but surprisingly all the same. | Under intense pressure from much of the EU, as well as the ECB, the IMF, and the European commission – as well as the Americans and the British – the German chancellor has shifted, not for the first time in the crisis, but surprisingly all the same. |
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