Germany is ready to back down to the demands of fellow eurozone members and allow for the expansion of the region’s bailout fund if members agree to a certain list of conditions.Those conditions, however, may be too strong for some members now concerned that their suffering is only being prolonged by membership in the currency union.
Societe Generale expect German demands to look something like this:
- Structural budget deficits capped for eurozone members at 0.35% of GDP (like Germany will have in 2016, and its own states will have in 2020).
- Sanctions against countries that break budget rules, including the revocation of EU voting rights.
- Domestic tax and pension reform that would make member countries look more like Germany (67 as retirement age).
- Domestic taxes on banks to raise money to be spent in the event of a bankruptcy.
- A means to bring haircuts to private bondholders of European sovereign debt.
- The 2013 European Stability Mechanism outlined in advance.
We highlight the domestic tax and pension reform portions of this list because they are the most likely sources of dissent between Germany and the rest of the eurozone’s members. From the the start, it’s going to be tough to make more “labour-friendly” states like France move toward the German way, and near impossible to make states like Greece, Italy, and Spain do the same.
In terms of tax policy, this could be a huge point of dissent between Ireland and the rest of the eurozone’s leadership. It surfaced, only mildly, during the bailout negotiations, but if Ireland’s corporate tax comes front and centre again, it may be tough for a country going through a political overhaul to agree to these new rules.