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In agreeing to help bail out Spanish banks and enter into a virtual banking union, albeit with strings attached, Angela Merkel lost an important battle. It was not the first time. While Europe’s media call her “Madame No”, in reality she is more of a Neville Chamberlain than a Margaret Thatcher. This time, it is the Germans who are being blackmailed – by the French. It all started in early 2010, when Ms Merkel suggested Greece leave the eurozone. After Nicolas Sarkozy threatened her with ending the special French-German relationship, she gave in and helped to bail out Greece. That turned out to be a bailout of French banks. Since then, every time she has drawn a new line in the sand, the French have pushed her over it. When she demanded automatic sanctions against violators of the euro’s financial targets, Mr Sarkozy talked her out of it at Deauville. For decades, German chancellors resisted the French idea of a European economic government, until Ms Merkel adopted it. Not long after she proclaimed a Financial Transaction Tax “counterproductive”, she joined the French in their fight for it.
France can expect further concessions by Germany. While the “debt brake” (designed to stop politicians piling up debts) is now part of the German constitution, François Hollande refuses to make it part of France’s, though promised by his predecessor. Such a debt brake in the second largest eurozone country would have been of fundamental importance to Germany. With Mr Hollande, the risk of France herself becoming a bailout candidate is rapidly growing.
Since Ms Merkel’s U-turn in agreeing to a special bailout arrangement for Spanish banks, the mood in her country has changed. 200 economists protested in an open letter to German citizens. Even the German constitutional court believes that enough is enough. In an unprecedented move, the judges publicly asked Germany’s president to withhold his signature under the ESM. Should the court rule that further shifts of power to Brussels are subject to a referendum or should Finland opt to leave the euro, Ms Merkel might face her second “Fukushima”... If a German referendum on Europe became one on the euro instead, she might face similar pressure. That could result in another spectacular policy U-turn, this time on the euro.
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