Bail-In Is the New Bailout for Germany's Politicians
Europe's leaders should be thankful. The meltdown in Cyprus is providing them with a miniature training ground for a disorderly default that may come in Spain, Italy or France. Cyprus is an unlikely microcosm that forebodes a much larger crisis. If the island-nation's insolvency can be managed through a compromise that doesn't rely solely on taxpayers in other countries, a total breakup of the currency may be prevented when the next flashpoint presents itself.
Cyprus -- with or without foreign money launderers -- has shown that the European project isn't going to work if northern Europeans are forced to pay higher taxes to backstop southern nations. And this won't happen as long as there are national parliaments that move in lockstep with local electorates whenever there is a new phase in the crisis. Cyprus's rejection of its bailout terms demonstrates that the national-supranational divide isn't restricted to the core members of the euro. Nobody wants to dance to a tune composed in Brussels.
Since Germany is often singled out as the sole impediment to European "solidarity" -- Finland, the Netherlands, Austria and Luxembourg are the other nations that have lived within their means -- it's worth mentioning that a new anti-euro party has emerged to attract the protest vote in parliamentary elections in September. The "Alternative fuer Deutschland" party advocates a return to the deutsche mark and other national currencies. If this fledgling movement secures the money and required number of members in time to register for the national election, it may play a spoiler role against the major parties.
Every fourth voter in Germany could imagine casting a ballot for a party that stands for the abolition of the euro, according to a new survey published by Focus magazine. That's about the same following that Beppe Grillo attracted in Italy, triggering political gridlock that will force a new election later in the year. If you also consider that Germany's Social Democrats backed a "bail-in" arrangement in Cyprus and have gone quiet on the issue of debt mutualization recently, there is little likelihood that German taxpayers will be asked for more money anytime soon to prop up an ill-conceived monetary system.
Chancellor Angela Merkel and Finance Minister Wolfgang Schaeuble showed no sign of easing their demands on Cyprus's banks today. "We're of the opinion that the bank sector must contribute to the sustainability of Cypriot debt," she said in Berlin. Judging by the political mood in Germany at the moment, "bail-in" is going to be the new catchword whenever someone asks for a bailout in the future.
(David Henry is a Frankfurt-based editor for Bloomberg View.)