Oct. 16 (Bloomberg) -- Germany’s Social Democrats, the prospective future coalition partner of Chancellor Angela Merkel’s Christian Democrats, are putting pressure on the government to toughen resistance to direct recapitalization of banks from the euro region bailout fund.
Speaking to reporters in Luxembourg yesterday, Finance Minister Wolfgang Schaeuble said “a lot of work convincing certain people in Berlin” will be needed to get legal changes quickly that would pave the way for the direct recapitalization of lenders through the area’s financial backstop, the European Stability Mechanism.
“Schaeuble is right in making clear that direct bank recapitalization would require a change of law,” Joachim Poss, the Social Democrats’ parliamentary finance spokesman, said by telephone. “The SPD’s position is very clear: we don’t support direct ESM aid for banks.”
Merkel, whose Christian Democratic bloc won Sept. 22 elections, may be left with the Social Democrats as her sole potential governing partner after the Greens dropped out of coalition talks in the early hours today, citing irreconcilable differences over tax policy.
“There’s an unmistakable hardening in Schaeuble’s language,” Carsten Brzeski, senior economist at ING Groep NV in Brussels, said today in a phone interview. “We’re going to hear louder SPD drum-beating against direct bank recaps in the coalition talks and even if Schaeuble, the CDU and the SPD are fundamentally on the same page, he’s got to keep hold of the high ground in the talks.”
Merkel has said she wants to pick a party for formal coalition talks before the first post-election session of Germany’s lower house on Oct. 22. Before then, on Oct. 20, the SPD will hold a congress that may approve or reject negotiations.
EU leaders last year sought to empower the ESM to lend directly to banks in a bid to break the link between sovereign debt and financial-industry struggles. While the direct-aid tool remains in development, leaders now are emphasizing national responsibility for stabilizing banks that need help.
“Schaeuble has just corrected a mistake of Merkel’s, when she agreed at a council meeting last year to direct bank recapitalization,” Poss said. “We will certainly bring this issue up in any coalition talks.” Merkel’s Christian Democrats and the SPD resume negotiations at 1 p.m. local time in Berlin tomorrow.
Euro region finance ministers in June agreed that the ESM would have 60 billion euros ($81 billion) available for the direct recapitalization of banks. Schaeuble then said governments must avoid “raising false expectations” on the availability of such aid.
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