Angela Merkel has rejected the pooling of eurozone debt proposed by Herman Van Rompuy earlier this week. In a speech to parliament in Berlin the German Chancellor said that agreeing to the popular eurobond debt pooling proposal would violate Germany’s constitution:
Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive.
The eurobond proposal is being supported by a majority of European Union leaders, the most vocal being President Hollande.
Merkel’s speech casts even more doubt over the outcome of this week’s summit that will have to produce something resembling a coherent plan in order to reassure the markets. This was already unlikely before Merkel’s speech as the proposals calls for a consultation in October and a final draft being presented in December. This is far too late. Christine Lagarde and George Soros have both said that European leaders have three months, not six, to save the euro.
As many predicted the Germans are resisting additions to their share of the burden. There is only so long that German taxpayers will pay for the irresponsibility of foreign governments. With Spain and Cyprus now seeking bailouts it is not hard to see why their patience might be wearing thin.
That Merkel is rejecting the debt proposals does not mean that some of Van Rompuy’s proposals will not be implemented. A long-term plan including the introduction of more eurocrats, regulations, and Europe-wide institutions could still be put together over the weekend. Merkel seems to support these long-term proposals but is hesitant to commit to a debt deal until they are in place.
One possible outcome of the summit is that European leaders agree on a plan that centralizes more power, expands the power of unelected officials, and dissolves the sovereignty of European nations even more. Such an outcome could extend the lifetime the euro by a matter of months. Another possible outcome is that no plan is reached, the markets react, and the euro collapses within the timeframe predicted by Lagarde and Soros. Neither is worth hoping for.