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11 September 2015

Financial Times: The German counter-attack on Juncker’s euro plans

For Germany, Juncker’s announcement that he intends to “move swiftly on all fronts – economic, financial, fiscal and political Union,” seems to be viewed as a classic case of Europe seeking to put German taxpayers’ money where the EU’s mouth is.

When Jean-Claude Juncker this week told a packed European Parliament he intends to forge a eurozone system for guaranteeing bank deposits, the European Commission president’s intention was to send a firm message of determination to strengthen the single currency’s foundations.
But just days after Juncker’s “state of the union” address, his attempt to sow hopeful seeds has hit stony ground in Berlin, where the plan was taken more as a declaration of war.
Several other eurozone governments – notably France – were urging a speeding up of the eurozone reforms as a way to build confidence in the single currency after the tremors caused by a near “Grexit”, but the German paper, by so openly breaking with the European Commission, may instead highlight the deep differences that still exist.
A particular irritant for Germany is Juncker’s intention to unveil plans for “more common deposit guarantee system” before the end of this year, a discussion directly prompted by the Greek fight.
In the talks on the Greek rescue package, Germany was thwarted in a bid to impose losses on large depositors at Greek banks as a way to help fund the €25bn recapitalisation of a financial sector laid low by an extended bank holiday and widespread capital controls. Berlin was faced down by the European Central Bank, which warned that such a “bail in” of depositors would shatter confidence and provoke a financial chain reaction.
In the aftermath of the bailout deal, further legal hitches have emerged in writing down even those creditors that everyone agrees should be on the hook for losses, like senior bondholders.
In the non-paper, Berlin is insisting that rules to achieve this (and so impose discipline on creditors) should be put at the top of the work pile before the kind of fanciful schemes Juncker is proposing.
Or, to put it more bluntly, Germany wants the era of bailouts to be well and truly over (or at least to get as far as humanely possible down this road) before it agrees to any more shared responsibility in handling crises.
Full article on Financial Times (subscription required)

© Financial Times

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