Merkel Rejects Van Rompuy's Debt Pooling Proposal

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. 

Comments

[BarryD]

The majority of European leaders support the idea of Germany paying for their profligacy?

What a surprise!

[Pound. Head. On. Desk.]

Germany in chains to pay for the rest of Europe's folly? Sounds like a ripoff of an Ayn Rand novel.

[Brutus]

Rand talked about ships actually transporting gold and goods to socialist basket cases. She didn't anticipate the digital revolution, where plunder rides a square wave of 1's and 0's. Otherwise, she was spot-on.

[RG]

Merkel 2016.

Someone who still respects a constitution.

[Tulpa the White]

I seriously doubt that's her main concern here, any more than BO's non-defense of DOMA has to do with constitutional concerns.

[alittlesense]

I just had this image of Lagarde and Soros....well....doing something........

[Episiarch]

Of course Merkel said "fuck you". She'd be insane not to. Not just for Germany's financial health, but for her own reelection chances.

The EU is finished. As bad as it was on many fronts, it allowed free movement and work throughout Europe, and that was a benefit to many people. Maybe they can keep that aspect.

[Cytotoxic]

Her re-election chances look pretty bad even with her bold stand.

[anon]

But epi, if you do that, some countries will perform better than others! WE CAN'T HAVE THAT! WE MUST ALL BE EQUALLY POOR!

[Restoras]

The trees were all kept equal
By hatchet, ax, and saw

[BarryD]

The British Empire managed to break up, yet still do that -- and also keep up those all-important national rivalries in sports that nobody outside the Commonwealth gives two shits about, or even knows how to play.

[rts]

The British Empire managed to break up, yet still do that

If by "that" you mean "allow free movement and work", I can tell you as a citizen of the Commonwealth I cannot freely move to any other Commonwealth nation for work.

[Restoras]

I love love LOVE the sports tribalism!

[tarran]

I'm baffled. I would think if the ECB stops buying sovereign debt, and the governments have to sell bonds on the free market, using interest rates to attract buyers, the craterign of the Greek government would have no effect on the currency.

Why is this option not on the table? What am I missing?

[BigFire]

Those sovereign debts will be hoovering at 11% yield instead of 5%. Anything above 7% is basically un-serviceable debt for the issuer.

[Ken Shultz]

"Euro bonds, euro bills, debt redemption funds are not only unconstitutional in Germany but also economically wrong and counterproductive."

German can be hard to translate sometimes, and it's even harder when it's begin filtered through politician speech.

The proper translation of what she said is, "German taxpayers should bail out the government of Spain?! Are you out of your freaking mind?"

Incidentally, Germany has let other major European governments alter their constitutions in order to get access to credit.

[Paul.]

I'm pretty sure she used the c-word, but in German.

[Hugh Akston]

It's the k-word auf Deutsch. All words are k-words auf Deutsch.

[EDG reppin' LBC]

Kunst?

[Invisible Finger]

Germany has let other major European governments alter their constitutions in order to get access to credit.

Gee, how nice of them.

[Cytotoxic]

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.

Oh contraire. The Euro was a terrible idea and getting rid of it is something worth hoping for. The EU is a hideous project.

[Tulpa the White]

The only thing keeping the dollar afloat is the euro.

[Paul.]

A receding tide lowers all boats.

[Tulpa the White]

I've said it before:

A plugged toilet lifts all turds.

[Scruffy Nerfherder]

I'm using that

[Cytotoxic]

I thought the only thing keeping the Euro afloat was dollar debasement? Hiideous symbiosis.

[Tulpa the White]

That's how we bootstrap in the fiat money world, yo.

[John]

We have to take our medicine sometime. The whole system has to go and the sooner the better.

[anon]

Considering how well Iceland is doing after its collapse, Europe should just get its shit together and disband the euro project. Doomed to failure from the start.

[Tulpa the White]

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.

And George Soros is an objective analyst with regard to currency matters, who would never make false and self-serving statements.

[DesigNate]

Better watch out Tulpa, shrike will be along any minute to call you a racist teabagging bush loving christhitler for calling out Soros.

[Paul.]

debt pooling proposal would violate Germany's constitution:

Debt pooling would violate morality.

I'm sorry my neighbor Doug ran all his credit cards up buying fast cars, hookers and blow, but it's not my problem.

[Chupacabra]

It takes a village to pay off Doug's debt.

[Brutus]

I've written Bill Gates and Warren Buffett, inviting them to cosign my mortgage, car payment, revolving line of credit, credit cards, etc., solemnly explaining how much strong it will make America.

I hope I got the right addresses...I haven't heard back yet...

[Paul.]

Warren Buffet believes that you should get a piece of his estate when he dies, so you might get some traction on that one.

[R C Dean]

Warren Buffet's estate is thoroughly sheltered. What he really believes is that you should get a piece of someone else's estate whent they die.

[Sevo]

R C Dean|6.27.12 @ 1:01PM|#
"Warren Buffet's estate is thoroughly sheltered. What he really believes is that you should get a piece of someone else's estate whent they die."

And it's no secret that his philanthropy is through a private organization that requires results. He isn't about to hand over the dough to some incompetent organization like a government.

[anon]

Oh the irony of Germany opposing a plan to turn Europe into a single nation ruled by a single board.

[mustard]

They'd be fine with it as long as it was a blonde blue eyed board.

[anon]

Yeah... I'm sure they have absolutely no problem being robbed blind because other countries in the euro can't get their shit together. None at all!

[RPR2]

it's so incredibly popular so there's nothing stopping Fance from pooling with the deadbeats without Germany unless the whole point was to rob Germany.

[mustard]

Merkel still thinks Germans are the master race who can't allow themselves to share with other countries. No big change there.

How long till they round up ethnic Greeks and put them in boxcars to pay off the German banks.

[Brutus]

Correct me if I'm wrong, but wasn't Germany all too willing to share its culture with Greece back in the day?

[anon]

Yeah, but they just didn't have the *right* person in charge.

[Mo' $parky]

Any day now...

*fingers crossed*

[Cytotoxic]

A joke...?

[SugarFree]

Lefty-troll or spoof of same. Same difference in the degradation of signal-to-noise ratio.

[Sevo]

Could be, but a brain-dead lefty posts here under "mustard'.

[tarran]

How long till they round up ethnic Greeks and put them in boxcars to pay off the German banks.

I don't think there is much of a market for box-car loads of people in general, let alone ethnic greeks.

[anon]

I also heard Greeks don't like working much, so they'd probably be of even less value.

[Bardas Phocas]

A box-car of Greeks aren't worth anything. Now a boxcar of Turks - almost as good as boxcar of Mexicans.

[ant1sthenes]

I don't think the German banks trust gifts bearing Greeks.

[DesigNate]

You totally just Godwined all over yourself. Here's a napkin to clean it up.

[T o n y]

Everything contributing to Germany's relative strength are stimulative policies (quasi-protectionism and strong labor unions among other things). It's also done 'austerity' in a smart way, not de-stimulating but increasing efficiencies and yes raising taxes in addition. It simply has a very well-organized domestic economic situation, as you would expect from Germans, and has weathered the crisis just about as well as the US only with better outcomes for their middle class. Merkel's reliance on austerity for other Eurozone countries is, of course, a matter of political reality, but as macroeconomic policy will be counterproductive, including for Germany.

The main problem is too much federalism. US doesn't have as good domestic labor, economic, and fiscal policies, but we do have a strong central bank and had a brief window where stimulus policies were able to be passed. If Europe had our advantages they'd be much better off. And of course I've never understood the virtues of increasing local authority in the US as advocated here; Europe is a plain example of that idea's flaws.

[John]

You really do hate all forms of freedom. I know we laugh at you. But you really are a brownshirt. Thank God people like you are never given unchecked authority.

[anon]

Know who else hated all forms of freedom and wanted unchecked authority?

[John]

Brown shirts. And ironically enough, the real brown shirts were all gay.

[Mr. FIFY]

Funny that he would defend Germany, given that they're all capitalist-y and whatnot.

[Ken Shultz]

The main problem is too much federalism. US doesn't have as good domestic labor, economic, and fiscal policies, but we do have a strong central bank and had a brief window where stimulus policies were able to be passed.

Germany is much more federalist than the United States.

We wrote their constitution that way because we didn't want them to have a strong central government--'cause you know who else had a strong central government?

Germany is much, much, much more federalized that we are. And that contributes significantly to their national austerity.

If you cited Germany as an example to suggest that Europe is suffering from too much federalism, then you don't know what you're talking about. Germany is the most federalized state in the Euro Zone. Why would you use them to suggest that federalism is the problem?

Germany is probably the most federalized government in the developed world.

[Sevo]

"you don't know what you're talking about."

That covers it, right there.

[T o n y]

I was referring to Europe. Single currency but not a strong enough central European government and a too-weak central bank. Germany does grant unique powers to its states but does have a strong central government.

[Paul.]

Single currency but not a strong enough central European government and a too-weak central bank.

You just listed two completely unnecessary institutions.

"Without a central bank, we'll have deep recessions and depressions!"

"Oh, we had a depression/recession with a central bank, so it's not central bank-ey enough!"

[gaijin]

Single currency but not a strong enough central European government and a too-weak central bank.

Because more power among a few top men is the secret sauce of success?

[Paul.]

It's no secret. Everyone knows it.

[Mr. FIFY]

"Germany does grant unique powers to its states"

Meanwhile, here in America, states who want to set their own policies, are told to go fuck themselves.

[DesigNate]

$

[NotSure]

Using this logic: Greece, France, Italy should all be better off than Germany, because their unions are way stronger and are way more protectionist than Germany. Germany has much stronger pro free market parties, unlike those other coutries, their parties essential sell the same shit you worship. Also Merkel is a responsible leader, yours is a little child.

[Scruffy Nerfherder]

Burn Baby Burn! Euro Inferno!