With the euro summit in just four days, German Chancellor Merkel is facing domestic opposition to euro-saving policy that could divide her coalition government.Her coalition, made up of centre right and other right groups, recently passed a resolution that says no to the stable eurozone states’ money being used for buying PIIGS bonds.
There is an opening for Merkel, however, in that the resolution does not ban the European Financial Stability Facility from being used in the future to buy government debt, according to Der Spiegel.
The problem is that, no matter what Merkel agrees to at the euro meetings, there will be some added pressure on Germany’s tax-payer. This could be a no-go for some parts of the coalition, and endanger Merkel’s position.
Societe Generale’s Michala Marcussen thinks this is going to end up in a weak compromise, with the euro credit problem exacerbated as a result.
By Societe Generale’s Michala Marcussen:
A weak compromise or postponed deadline at the March 24/25 summit would spell more woes for euro area sovereign spreads, bank paper and potentially the euro. Last week, Fitch put Spain’s AA+ credit rating on negative outlook due to risks from the weak economy, the banking sector and fiscal consolidation by regional governments. Fitch, moreover, warned that failure to produce a credible and comprehensive plan on March 24/25 could see Spain punished.