Thursday, September 29, 2011

Euroland news.....

German Fatigue?

Excerpted  from...
Please go to WSJ for the original

SEPTEMBER 29, 2011

Germans Reconsider Ties to Europe

Merkel Scrambles on Bailout Vote as Key Allies Desert Her


BERGISCH GLADBACH, Germany—As Angela Merkel races to convince Germans that their continued prosperity rests on preserving the euro, she is encountering strong resistance even from those in her own party who have been traditionally among the country's most pro-European politicians.
When German lawmakers vote Thursday on whether to put more money into Europe's bailout fund—a step many investors see as essential to prevent a market panic—several conservative deputies, including Wolfgang Bosbach, a prominent champion of European integration, are expected to vote "no." Mr. Bosbach, a high-ranking conservative in Ms. Merkel's Christian Democratic Union, has recently become an outspoken critic of the bailout strategy.
"The first medicine didn't work, and now we are simply doubling the dose," said the lanky Mr. Bosbach of the Greek debt crisis. "My fear is that when the big bang happens, it won't just be us who will have to pay but generations hereafter."
The lawmaker rebellion underscores a broader shift among Germans about their nation's role in Europe since the crisis erupted nearly two years ago. While the Thursday vote is expected to pass, and a vast majority of Germans continue to feel a strong, historical commitment to Europe, with a common currency as its anchor, many have grown doubtful of whether it's worth the ever-growing cost of saving the euro.
Like many Europeans, few in Germany today fear the return of armed conflict in Western Europe, the decades-long impetus behind what Germans still often call the "European peace project."
Instead, economic prosperity and stability have become the main rationale for monetary union, an argument many Germans say they have trouble reconciling with one ineffective bailout after another.
Unable to persuade an increasingly skeptical German nation to go along with more rescue measures, Ms. Merkel risks presiding over Germany's growing isolation and the dissolution of the euro—the crowning achievement of Europe's post-World War II drive toward integration.
Ms. Merkel, a 57-year-old trained physicist and a famously cautious politician, is making a belated attempt to rekindle Germans' love affair with the idea of European unity.
On Sunday, the normally interview-shy chancellor defended her euro rescue efforts in an hour-long prime-time conversation on public television.

"We need the euro. The euro is good for us," Ms. Merkel said.
Germany's main opposition party has agreed to support the bailout, ensuring its passage.

Yet the growing backlash within Ms. Merkel's conservative base suggests that her coalition will face strong internal headwinds in the coming months if, as expected, Germany is asked to commit even more resources to contain Europe's spiraling debt crisis.
Mr. Bosbach, a party veteran whose district runs along the eastern wooded hills of the Rhineland—the cradle of Germany's decades-long engagement with Europe—is at the vanguard of a movement against further bailouts.
A longtime ally of the chancellor, Mr. Bosbach brought Ms. Merkel flowers in June to congratulate her on receiving the U.S. Presidential Medal of Freedom in Washington. Last year, Mr. Bosbach, affectionately called "Wobo" by many colleagues and constituents, also threw his support behind the initial European debt bailouts.
But after six decades of embracing and funding an integrated Europe, the pro-European heart of Germany's ruling class is divided over how much further to go to defend it.
"I don't want to be co-opted into an anti-euro movement—the EU is an important political project," argues the 59-year-old Rhineland Catholic, whose straight-talking manner and public battle with advanced prostate cancer has won him friends across political lines. "But what we promised the people was a union of stability, not a union of debt."
A poll for national German broadcaster ZDF earlier this month shows three-quarters of Germans are against the expanded European rescue fund that's subject to Thursday's vote.
"It's no longer some remote debate; it's about our daily lives and what will happen to our savings, our economic standing," said Ria Borgmann, a retired local government administrator while shopping on a recent afternoon in Bergisch Gladbach, the heart of Mr. Bosbach's voter district.
While Ms. Borgmann, 64, said she typically votes left of the more conservative Mr. Bosbach, she's found herself agreeing with his reasoning. "I am very much for Europe, but at some point there's got to be a limit to rescue packages."

The measures before German parliament today would nearly double the main euro-zone's bailout fund's lending capacity to €440 billion ($595 billion) and allow the fund to buy sovereign bonds in the open market.
Ever since the debt crisis began in Greece nearly two years ago, Ms. Merkel and her party have agreed to bailouts of struggling euro members only reluctantly. As the crisis has deepened, posing an existential threat to the currency union, Ms. Merkel has come under fire for jeopardizing the legacy of Helmut Kohl, the chancellor who built today's unified Germany as well as the European Union.
Though Germany has played the euro-zone's fiscal task master, insisting on painful austerity before opening its purse strings, there remains little support for withdrawing from the common currency that underpins European integration. Surveys show most Germans still see a united Europe as key to ensuring prosperity and peace on a continent with a legacy of conflict.
Still, many fear they'll soon be forced to choose between watching the common currency collapse and sacrificing their prized fiscal rigor to a European super state that enables debt-ridden countries such as Italy and Greece.
Germany's contribution to the new, expanded rescue loan package is €211 billion, still less than half the €500 billion it pledged to bail out its banks in 2008. But many see the European Central Bank's moves to buy billions of euros in low-grade government bonds of southern European countries as another sign that European institutions are slipping away from them.
Even more unpalatable is the prospect of making the euro zone collectively liable for its members' debts, as a growing chorus of European officials have recently urged. Many argue so-called euro bonds, which Ms. Merkel has steadfastly opposed, are the bulwark to relieve financial pressure on debt-ridden members and underpin the euro zone's full fiscal union.
But to Germans, it would mean relinquishing their hard-won low borrowing rates to pay for the largess of more free-wheeling members.

"Ultimately the euro-bond issue will come to a head, and Ms. Merkel will have an impossible dilemma," says one senior German coalition lawmaker. "If she goes back to the German people with [euro bonds], she is out. If she doesn't, she will be a very lonely person in Europe."
In Berlin and beyond, Mr. Bosbach's antibailout stance has resonated loudly. Hundreds of letters in support have poured into his parliamentary office, as have dozens of media requests. Back home on the streets of Bergisch Gladbach, and other district towns, voters have rushed up to encourage him.
Mr. Bosbach's position, though, has put him at odds with the majority of his coalition colleagues. One senior Christian Democrat said voters in other districts now routinely ask him and other lawmakers why they don't oppose the broader bailout fund like Mr. Bosbach. Another, the party's deputy parliamentary chairman, Michael Fuchs, criticizes Mr. Bosbach for taking his position too early in the rescue fund debate.
"Wolfgang Bosbach gets a lot of things right, but in this case he is plain wrong," Mr. Fuchs says of his friend and colleague. "Early on, I had a stomachache just thinking about a [bigger] rescue fund, but now I'm satisfied," he says. "It's necessary to protect Germany."
Like many of his constituents, Mr. Bosbach's fiscal and political world view was shaped by Germany's postwar years, as a newly minted deutsche mark helped fuel the country's economic miracle. Born into a deeply Catholic family, he grew up in woodsy hills east of Cologne and the Rhine Valley, the same region as ex-chancellors Konrad Adenauer and Kohl and one particularly scarred by 20th century conflict.
At home, religion and conservative politics dominated dinner conversations. So did lessons in responsibility. As a child, Mr. Bosbach would collect scrap paper around the neighborhood to deliver to the local paper mill.
"It wasn't for money, it was about showing responsibility," said Mr. Bosbach, whose website lists two of his three favorite books as the Bible and Germany's Constitution (the third is Paulo Coelho's "The Alchemist"). Introduced to the Christian Democrats' local youth group at local soccer-league matches, Mr. Bosbach began a career in municipal politics in his 20s and, later, practiced law.
He eventually won election to Germany's national parliament in 1994, climbing the party ranks as one of its top homeland security and interior affairs experts. There, he was a backer of then-Chancellor Kohl's pursuit of monetary union as a measure of Germany's commitment to a united Europe.
He has also been a staunch ally of Ms. Merkel. In 2004, he threw his weight behind her chancellor candidacy, going against the tide of some fellow CDU conservatives. She texted him between euro-crisis meetings last year to wish him a speedy recovery while he was in the hospital after prostate surgery.
But after voting to ratify a Greek rescue package and initial euro-zone bailout fund last year, Mr. Bosbach's doubts about the effort began to stack up. First Portugal, then Ireland, Spain and Italy became ensnared in the contagion. By spring, as Greece's economy seized up further and its debts appeared even more unwieldy, he became convinced of the futility of bailouts.
Like many ordinary Germans, Mr. Bosbach objects to the reasoning that the euro zone can only survive if a country as indebted as Greece is kept on board. Instead, he argues, the currency bloc needs clear rules that let an insolvent country exit, and can only achieve stability if they're reinforced. "The issue isn't whether Greece wants to turn around, it's whether it can," he said.
Germany's political and business elite overwhelmingly oppose such a hard line, arguing that cutting off aid now could cause the euro zone to unravel. "No really good and fast solution exists," the chiefs of Germany's top industry federations wrote in an open letter to parliament on Friday. "But without an expanded European rescue fund, incalculable consequences threaten the European Union and its common currency."
But in Mr. Bosbach's district and beyond, his views are gaining ground.

A big problem for the rest of the euro zone is that many ordinary Germans say they don't see the tangible benefits of a common currency. The German economy, which came roaring out of the global financial crisis, is Europe's economic locomotive, but much of its growth and productivity gains have come with entitlement trimming and wage restraint. Average people's wages have stagnated over the past decade, even as exports and corporate profits have boomed.
Meanwhile many, like 57-year-old Franz Dahlen of Bergisch Gladbach, worry that the more Germany spends to rescue its less prudent neighbors the bigger the cuts to Germany's already-pruned welfare state.
"There's no end in sight and so much in our own country that needs to be restored and fixed," said Mr. Dahlen, a former salesman who now runs a foster children program. "I wish Germany would look at its own challenges more closely because otherwise soon we'll be poor."

—David Crawford and Marcus Walker contributed to this article



My Thots.....

1) Merkel will pull thru courtesy of the opposition. The buzz in the biz media is about German disenchantment and rebellion especially from the CDU & her junior partner in the coalition i.e. FDP.
The conservative camp does not seem to have the stomach & gumption to back Germany's neigbours when they are in most dire need for help. The Greens & the Left it seems are more reliable & flexible.

2) Let's just weigh the pros & cons to Germany.
Approx. 40% of German exports go to Euroland, approx. 30% to Rest of Europe (RoE).
US share is dropping marginally. Asia's share is showing incipient growth but far lags German reliance on Eurozone & RoE.
So like it or not, Germany's has vested interests in the survival of the monetary union and common market. Her present & future is intertwined with the destiny of her neighbours; profligate or not.


The costs as shown in the Table below is 273b for PIG (Portugal, Ireland & Greece).
But, remember that is in the form of guarantees which Germany may not be liable for if they act boldly so that the bond vigilantes flee and market confidence returns. It is leveraged,  a value for money proposition with the rest of the guarantees stumped by IMF & EU countries.
Germany's contribution to the new, expanded rescue loan package is €211b , still less than half the €500b it pledged to bail out its banks in 2008.
So the costs of  voting for action as prescribed in  the July bailout which quenched markets is €211billion.But the costs more than doubles if the situation deteriorates.
Hence, there is no reason for the German parliament to vote "NO" !!!



qiaofeng said...

Well, Merkel got an overwhelming majority For (523) to Against (85) with 3 abstentations.
The biz press proves to be a poor gauge of German voters sentiment.

qiaofeng said...

EFSF will be raised to 440b Euros

"Wisdom is purified by virtue and virtue is purified by wisdom. Where one is, so is the other."