When Angela Merkel, the German chancellor, says there are no quick fixes that will resolve the eurozone crisis, she means it.
We must unite ... or else
Instead, she has set her heart on a far more ambitious goal: to drive the 17 European partners that share the euro as a common currency towards a fiscal union. It will take many months, if not years.Ms Merkel remains adamant that short-term “financial” solutions – such as introducing jointly guaranteed “Eurobonds”, or urging the European Central Bank to intervene massively in sovereign bond markets – will not solve the fundamental problem of excessive debt in the eurozone that has undermined the trust of investors.
“These are political problems that require a political solution,” she said this week. It is a “step-by-step” approach that will require change in the European Union treaties, but she is convinced it is the only way to restore confidence in the markets....
By fiscal union, she means ever closer co-ordination, and direct supervision, of national economic and budgetary policies in the eurozone. She wants debt and deficit limits enforceable in the European Court of Justice. And she wants a European Commissioner who will be a sort of super-finance minister, with powers to demand changes in national budgets if they break the rules, and to impose automatic penalties if they do not fall in line.
There we have it.
The Iron Angel wants to exert Teutonic discipline on the wayward peripheries of the Eurozone, so that all 17 members become as careful about their finances as Germany has been.
Will she achieve this greater fiscal union? She is a tough person, with clear ideas about the nature of the problem, its scope, and methods to solve it.
The managers of the financial organizations who invest in government bonds would prefer a quick solution, which amounts to Germany guaranteeing the debt of the weaker sisters.
As for Merkel, she's not playing that game:
Would she accept Eurobonds in return for EU treaty change? “It is not a question of give and take. It is about a big step towards fiscal union,” she insisted. To introduce joint Eurobonds first would send “a completely wrong signal.”
At least not for now.
The time is high noon, according to the financial investors, the sun is beating down, dust is stirring, and a lone gunman faces a horde of armed investors.
I would not bet against Merkel.
She has more power to order investments in government bonds than the financial investors have given thought to. One way is to order any financial institution in the Eurozone to invest a certain portion of their funds in government bonds of Eurozone members. Another is to levy higher taxes on Eurozone institutions (bypassing David Cameron's veto rights through a side-deal between the 17 Eurozone members – it's amazing what you can do with side-deals when the will is there!)And her best weapon? A slow, steady step by step approach to the euro crisis.