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Europe's Bigger Firewall Gets German Support
"Who do you call if you want to talk to Europe?" Henry Kissinger is supposed to have once said. The answer today is probably 911. An emergency situation has even Germany softening its opposition to bailouts in a bid to save Europe.
Chancellor Angela Merkel and her finance minister, Wolfgang Schaeuble, are now open to the idea of the European Financial Stability Facility (the temporary bailout fund for the euro area's indebted countries) and the European Stability Mechanism (the permanent fund that was scheduled to replace the EFSF this year) running in parallel for a transitional period. This would effectively raise the amount available for loans to euro-area countries to 692 billion euros ($875 billion), exceeding the 500 billion-euro limit that Merkel has supported.
Citing "the great sensitivity and fragility" of Spanish and Portuguese bond yields, Merkel said the 200 billion euros in loans that had already been distributed to Greece, Portugal and Ireland could be paid back after the ESM comes into effect. This comes on the heels of warnings from Italian Prime Minister Mario Monti, who said the euro crisis may reignite because Spain "hasn't paid enough attention to its public accounts."
Meanwhile European Central Bank President Mario Draghi has ruled out a transfer union and common euro bonds as a solution to the crisis, leaving the firewall as the only way to buy time while indebted nations carry out structural reforms.
Germany's gradual concessions are a response to the disillusionment felt in much of Europe over the prospect of permanent bailouts and growth-throttling austerity measures. Recent signs highlight the need to jump-start the European project before national defaults threaten its existence.
Last week, the Spanish newspaper ABC reported that German Foreign Minister Guido Westerwelle was founding a "Berlin Club" of pro-European countries that could forge a response to crises. Among the members are Poland, Belgium, Italy, Portugal, Austria, Luxembourg, Spain, Denmark and France. The list was more noteworthy for the 18 countries that weren't included as "pro-European."
In France, the newspaper Le Monde said this month a majority of French are indifferent to the idea of Europe and that fewer than 50 percent of respondents in a survey saw it as important that the European Union give their country more weight in political and economic decisions taken at the world level -- hardly an encouraging sign from Germany's main partner.
Columnist Dorothea Siems of Germany's Die Welt newspaper said today that, "Politicians' tactics of always admitting the truth in small bits won't calm the markets in the long term, nor will it make voters enthusiastic about Europe's growing together." Whatever the effect, Merkel's tactics show that it's better to give the population the truth in small doses than it is in one big serving.
(David Henry is an editor for Bloomberg View.)
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