We’ve seen a number of big headlines out recently about German banking coordination and a push for fiscal union, perhaps more quickly than anyone had anticipated.But are these headlines promising, or are they just fluff?
Here’s a little bit of what’s been said so far:
- German Chancellor Angela Merkel told reporters yesterday before a meeting with European Commission chief Jose Manuel Barroso that they would talk “about to what degree one has to bring the systemic banks under specific European supervision to keep national interests from playing too large a role.”
- Merkel also cited a desire for political union in Europe, which would set the stage for fiscal union. She called the fiscal pact “one step, but it’s not yet sufficient.”
- In an exclusive interview with Handelsblatt (via GTranslate), German Finance Minister Wolfgang Schaeuble said, “Before we talk about a joint debt management, we need a proper fiscal union.” He added that a banking union was a possibility down the line.
- Schaeuble reiterated arguments that more debt-financed spending would not lead to a return to growth, and that unsustainable economies must reform to make themselves competitive.
- Meanwhile, rumours are circulating that Merkel has been pressing Spanish officials to except EU bailout fund aid, but that Madrid has been resisting these efforts.
The takeaway from these statements is underwhelming. What is clear is that Germany has not materially changed its position on management of the crisis, although it may be stepping up the timetable for change.
Furthermore, these headlines suggest that Germany might see the benefit of making a few concessions early rather than losing political power over Europe in the event of a catastrophe. Germans have made no secret of their desire for other countries to submit to the spending plans they design (remember that alleged German plan to revoke Greece’s fiscal sovereignty in exchange for bailout funds?).
While on one hand their interference may be motivated by fears of potential risks Spanish banking problems pose to the European financial system, German encouragement for a Spanish bailout might be interpreted as a grasp for sovereignty—Germany wants more say over how the Spanish government proceeds in the future.
With pressure mounting on all sides, it seems clear that Germany will have to blink at some point—it’s all about how they’re going to play their cards. They will ultimately make concessions, but these comments indicate that we really shouldn’t be getting too excited about an ideological change in German leadership right yet.