Saturday, November 26, 2011

Chancellor Angela Merkel's bypassing tactic on its way to success

David Cameron wants a pound of flesh in return for the UK agreeing to changes to the EU Treaty to bring on closer fiscal union in the Eurozone. Pushed by the Euroskeptics in his party, he has to pander to them by trying to change the deal and repatriate more power to the UK government.
The Chancellor with the bypass

But Merkel is focused on trying to remedy the problems caused by governments in the 17 member Eurozone borrowing too much, having bloated governments, with too few vigorous private sector businesses, and lax tax gathering arms.

To avoid being held to ransom by Cameron, and to expedite matters, she is going to bypass the EU treaty amendment through a side deal between the Eurozone members:


Under the proposed plan, national governments would seal bilateral agreements that wouldn't take as long as a cumbersome change to European Union treaties, according to people familiar with the matter. Some German and French officials fear that an EU treaty change could take far too long. That has prompted the search for a faster option.


The plan, which hasn't been finalized, would allow the euro zone to announce a speedy change to its governance. European authorities would gain tough new powers to enforce fiscal discipline in the 17 countries that make up the euro zone, the people said. EU treaty changes could then follow at a later stage...

The EU treaty allows countries to engage in "enhanced cooperation" if at least nine countries agree, circumventing the need for a unanimous treaty change among all 27 EU members.

The chances of German economic power causing at least 9 members of the 17 in the Eurozone to agree to her closer fiscal union are pretty good.

However, she will still be seeking EU Treaty amendments, and in return for this she will have to consider the Eurobond, which bundles borrowing by all EU members into one bond, buttressing the weaker members because the stronger ones are on the hook for their share.

Will Merkel agree to guaranteeing the weaker nations fund raising? The chances are slim, unless there is something meaningful on the table for German taxpayers.

So far, none of the proposals being floated have done this, so anybody betting on the Eurobond becoming reality in the next few months is taking a gamble.
The odds favour Merkel.

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