01 July 2012

Reuters: Euro defeat for Merkel? Only time will tell

The high-stakes meeting seemed to show that by banding together in a powerful coalition to challenge Germany, Mario Monti, Mariano Rajoy and François Hollande were able to wring major crisis-fighting concessions from a suddenly soft Angela Merkel.

With her plans hinging on parliamentary votes scheduled for hours after the summit, Merkel took an unyielding public stance in advance. That made it appear as if she had retreated, when in fact she may have got much of what she wanted. Merkel's biggest concession was to agree to give the eurozone's new permanent rescue fund, the European Stability Mechanism (ESM), the power to inject aid directly into stricken banks.

Her condition was support for one of Berlin's key demands - the establishment of a central supervision authority for banks run by the European Central Bank (ECB). But its creation may ultimately be seen as a victory for Merkel and her vision of a united, integrated Europe with strict central controls. The loss of sovereignty it implies may only dawn on Monti, Rajoy and Hollande once EU officials put the meat on the bones of the plan in the second half of the year.

But this victory was more symbolic than substantive. Much of the overall figure will come from already pledged, but unused, EU structural funds. So why was the summit seen by so many as a major defeat for Merkel? Bild said the chancellor had been "blindsided" in Brussels, while Der Spiegel wrote that she had become a "hostage" to southern euro states.

One reason may have been her need to maintain an ultra-hard line in the days leading up to the summit, to keep sceptical German lawmakers on-side ahead of votes on EU crisis measures. Even after agreeing in the days before the summit to direct aid for banks, the EU sources said, the German side insisted it be kept quiet.

Had Merkel signalled a readiness to do a deal beforehand, the large majorities she needed on Friday in parliamentary votes on the ESM and "fiscal compact" on budget discipline may not have materialised.

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© Reuters