Sunday

9th Aug 2020

Merkel under pressure over summit deal

  • The Bundestag is due to vote on the treaty establishing the permanent bailout fund (ESM) at 5pm Berlin time (Photo: consilium.europa.eu)

German Chancellor Angela Merkel's decision to help Italy and Spain by easing up the rules on the use of the bailout funds is already having a direct political fallout at home.

The opposition Social Democrats have called a special meeting of the Bundestag's budget committee to discuss the late night deal in Brussels to allow the bailout fund to directly fund banks and eventually buy up government debt.

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Carsten Schneider, head of the budget committee, said the Chancellor needed to explain her "180 degree u-turn." On Twitter, he indicated the agreement would lead to moral hazard. The deal means "all obligations on a country are now only paper tigers."

Meanwhile German newspapers are portraying the outcome as a victory for Italy's Mario Monti - who came into the summit saying this was the minimum he needed to be politically credible back in Italy - at the expense of Merkel.

"The night in which Merkel lost," says a leading article on Spiegel Online. A comment piece in the country's foremost centre-right daily, the Frankfurter Allgemeine Zeitung, is titled "The debt union is getting closer."

Merkel, who struggles to balance the wishes of a restive parliament and the needs of struggling euro countries have shaped the single currency's response to the crisis over the past two years - was already keen to stress the conditionality within the deal.

Returning to the summit on Friday morning, she said if Spain or Italy wanted to have the eurozone bailout fund buy their government debt - they would have to agree to a reform programme, as well as supervision by European Commission, European Central Bank, and International Monetary Fund officials - known as the troika.

Meanwhile, bank getting directly recapitalised by the funds will also be a multi-step, condition-filled process.

"As such we are staying fully within the scheme we have had until now. We stayed true to our principle of 'no payment without guarantee'," said the chancellor.

The Bundestag is due to vote on the treaty establishing the permanent bailout fund (ESM) at 5pm Berlin time. It will vote on the treaty in its current form.

Berlin officials were saying on Friday that two more votes will be needed further down the line to establish a eurozone-wide bank supervisory authority and on allowing the ESM to directly recapitalise banks.

But the vote is not the final step in establishing the ESM on 9 July, as initially planned. The leftist Linke party has promised to lodge a constitutional challenge on Saturday, with the German president already having indicated he will wait with signing the ESM law until the Karlsruhe-based court gives its verdict. This may take a few more weeks.

Eurozone officials have however prepared for that scenario, with the Spanish bank bailout of up to €100 billion to be paid by the existing, temporary bailout fund (EFSF) and taken over by the ESM when it comes into being.

Analysis

EU summit deal leaves many questions open

The EU summit has failed to produce a big step towards a political and economic union, with "palliative" measures adopted on Spain and Italy and a vague plan for banking supervision.

Top EU officials urge MEPs give quick budget-deal approval

MEPs criticised the EU deal on the budget and recovery package clinched by leaders after five days of gruelling talks, saying it is not enough "future-oriented", and cuts too deeply into EU policies, including health, innovation, defence and humanitarian aid

EU Parliament gears up for fight on budget deal

European parliament president David Sassoli said certain corrections will have to be made in the budget, citing research and the Erasmus program for students, calling the cuts "unjustified".

EU leaders agree corona recovery after epic summit

After gruelling five-day talks, EU leaders agreed on €390bn in grants and €360bn in low-interest loans to hardest-hit member states - after much opposition from the Dutch-led 'frugal' bloc of countries.

EU summit enters fourth day with recovery deadlocked

After bilateral negotiations continued all Sunday night, mostly to try to convince the 'Frugal Four' to move their red lines, European Council president Charles Michel is expected to table a new proposal on Monday afternoon with €390bn in grants.

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