Germany balks at calls to give more to $657B eurozone bailout
EU leaders want largest economy to bolster fund
BERLIN — As European leaders meet today in Brussels to forge a closer fiscal union as a way to ease the European debt crisis, doubts are growing over the measure pushed by Europe’s largest economy, Germany, along with France, to save the eurozone.
Many EU nations say they want Germany to do more to bolster an emergency fund to back bailouts of heavy debtor nations such as Greece, Italy and Spain.
Germans are not in the mood to hand out more money.
“It doesn’t make sense if we keep promising more money but don’t address the causes of the crisis,” German Chancellor Angela Merkel told the German daily Süeddeutsche Zeitung.
Merkel and leaders of other wealthy nations say the turnaround of the eurozone rests on Europe’s fiscal treaty, which was reached in December at a summit in Brussels, with 26 of the EU’S 27-member states signing on. (The United Kingdom said no.) The treaty has been hailed as the solution to the crisis.
The pact, finalized by EU finance ministers last week, paves the way for closer fiscal integration through stricter constitutional measures and automatic sanctions for nations that spend beyond limits set by the EU.
Italian Prime Minister Mario Monti and European Central Bank President Mario Draghi called on Germany to contribute more funds to the European Stability Mechanism, the permanent eurozone bailout fund. Both say the ESM, which is set to go into effect this summer, should be boosted from its current level of $657 billion to $1.32 trillion.
International Monetary Fund head Christine Lagarde praised Germany for playing a vital role in Europe, but then warned Germany needs to put up more money.
“We need a larger firewall,” Lagarde said.
Germany has not budged. Conscious of German taxpayers’ furor over bailing out their more profligate neighbors, Merkel says that Germany will not fork over anymore money, leading some to wonder whether another solution can be found before it is too late.
German lawmaker Frank Schaeffler says his nation has had it with handouts.
“It’s worrisome that international pressure on Germany continues to grow and that there is this demand to keep adding to both bailout funds,” he said.
The idea of forcing debtor nations into fiscal responsibility by rewriting the EU treaty is also coming under growing criticism as the details of the agreement become clearer.
According to the latest draft, eurozone governments that exceed EU deficit and debt limits could be fined up to 0.1% of their gross domestic product (GDP).
Some legal scholars say such proposed treaty changes may not be constitutional. Retired German federal court judge Udo Di Fabio told Der Spiegel that a mechanism that would give other countries or the EU control over Germany’s budget would be anti-democratic.
Even if the treaty charges are deemed legal, it may still be impossible for politicians to sell them to their citizens.
“All states which will sign the new treaty must ratify this contract,” said Oliver Sauer, a legal analyst at the Center for European Policy in Freiburg, Germany. “But this could trigger serious political implications as we see in the Czech Republic, where the necessity of a possible referendum on that treaty is now being discussed.”
Member states are required to ratify the treaty, but referendums are not required.
A referendum in the Czech Republic would be enough of a headache for the bloc, but the possibility that the same could happen in Ireland — where opposition parties are threatening to take the government to court if it doesn’t put the treaty up to a public vote — strikes fear in the hearts of the EU’S biggest champions.
“If there is a referendum in Ireland, it will most likely be not only about this treaty but more generally about the attitude of the Irish people against the rest of Europe,” said Zsolt Darvas, a research fellow at Bruegel, a Brussels think tank devoted to international economics.
Nevertheless, German and French leaders remain confident that the treaty will provide the frame for structural changes and stricter controls badly needed in the eurozone.
Merkel said the risk of a collapse of the European bloc will force action.
“I don’t want the EU to be a museum for all the things that were once good,” she said.