19 Oct 2012

Germany has the money and Germany gets its way

There’s some coverage hailing a mini-breakthrough overnight here but it’s not clear just how much has changed.

The June EU summit agreement, it was thought, stipulated that the bailout fund would be used to bail out banks and specifically Spanish banks, getting the Spanish government off an excruciatingly impaled hook. Germany, as ever, said nothing could happen until new rules requiring better behaviour and ceding national control to the centre had been put in place.

Now, after hours of wrangling over what all that meant and how far Germany was willing to go, we have an announcement that “work on the operational implementation” of the recapitalisation of banks by the ESM bailout fund “will take place in the course of 2013”.

Germany has elections in September 2013 and, as the Telegraph’s Bruno Waterfield comments here,  it’s not clear if a cent will go to a bank until after those elections. Not clear also whether Spain, hailed as the main beneficiary, is actually going to be allowed to use this developing facility to allow Madrid to crawl out from under the Spanish banks’ debt.  And it appears to be pretty clear beyond dispute now that Spain, hailed as the main beneficiary of the June deal, is not actually going to be allowed to use this developing facility but will have to wait for ECB bond buying or sign up to the dreaded bail-out instead.

Der Spiegel this morning reports: “The compromise is a victory for Merkel. Both France and Spain had been emphatic that bank oversight begin on Jan. 1, 2013. Berlin, however, insisted that any such regime be thoroughly planned and resisted efforts to move quickly, receiving support from such non-eurozone countries as Sweden and the Czech Republic. Over a dinner of roast veal and spinach, Hollande and his allies backed down.”

At his lengthy press conference in the early hours, President Hollande said the bail-out fund could be tapped within weeks of 1 January 2013 and in her terser press conference Chancellor Merkel said it would be unwise to make predictions on timings. Francois Hollande determinedly wanted to distance himself from the “Merkozy” image of his predecessor, indistinguishable from German policy. You could argue on the basis of June and October that the Hollande approach is not bearing fruit. He may have underestimated the need to be on-side with Chancellor Merkel and he certainly seems to have underestimated the degree to which Mario Draghi at the ECB is working hand in glove with the German chancellor.

Meanwhile, as Philip Stephens writes in today’s FT, the grumbling about Britain carries on. Quite a few Tory MPs I spoke to before coming out to Brussels thought the Der Spiegel piece portraying the UK as the grumpy old men in The Muppet Show was an attempt by Chancellor Merkel to swipe back at Britain and get the message out there that the UK might well want “out” and noone was going to fight too much to keep us in. If so, is that German approach disinenguous or real? David Cameron’s strategy – a big renegotiation followed by a referendum – is based on it being a bluff.

But Chancellor Merkel is the leader who, in December 2011, said to van Rompuy that it was time to move on to other matters when David Cameron thought he was just getting started on his special arrangements for protecting the City.

Mr Cameron may get more clues what the German chancellor really thinks of him when he comes back here for the November and December summits.

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