25 September 2012

WSJ: Berlin seeks to push back new euro crisis aid requests

Progress on two of the eurozone's most pressing concerns—containing the crises in Greece and Spain—faces hold-ups up in Germany, where Chancellor Angela Merkel is reluctant to ask parliament to vote on measures that are likely to raise fierce opposition from within her own coalition.

Greece faces a funding shortfall that is likely to require more generous financing from Germany and other eurozone governments. But Ms Merkel's aides are searching for a way to close the shortfall without asking German lawmakers for more money. Spain's decision on whether to seek bond market intervention by the European Central Bank, as financial markets are hoping, is also in limbo. That is partly because Germany has signalled that it doesn't want Spain to make the move.

In either case, any request for fresh bailouts would be likely to spur a bruising and politically damaging fight in Germany's lower house of parliament, the Bundestag. Such measures are likely to gain passage with the support of opposition parties. Still, the votes could split Ms Merkel's centre-right coalition ahead of German national elections in fall 2013. A growing number of conservative back-benchers are opposed to further taxpayer aid for other euro members, particularly for Greece, which many German conservatives view as throwing good money after bad.

The government also fears that taxpayer aid for Spain would be hard to justify to lawmakers at a time when Spain is able to sell bonds comfortably to private investors, and that granting a Spanish aid request could prompt the market to train its sights on the next target, Italy.

The government's wait-and-see approach carries risks. The present calm in eurozone financial markets could be short-lived if investors see that political obstacles could keep Spain or Italy from benefiting from ECB bond market support. Also, shoring up investors' confidence could prove harder and more expensive if eurozone governments and the ECB intervene only when the next wave of panic threatens Spain's bond market.

The Bundestag is likely to continue to approve eurozone aid requests, as it has done on all occasions since Greece first secured a bailout in May 2010, thanks to the support of left-leaning, euro-friendly opposition parties. But Ms Merkel's lack of a majority in her own conservative camp for eurozone bailouts—evident in several Bundestag votes over the past year—is politically embarrassing and threatens to increase the divisions within her fractious government. Many lawmakers in Ms Merkel's junior coalition partners, the free-market Free Democratic Party and the conservative Christian Social Union, are hostile towards further loans for Greece and sceptical about ECB purchases of Spanish bonds.

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