Europe’s struggle with countries’ sovereign debt this week faces a string of political and legal tests.
As pressure increases on governments to try more radical solutions, the European Central Bank is expected to review the programme.
The ECB’s monthly policy meeting this Thursday will include key debate on possible bond market intervention to protect Italy.
The efforts to tackle runaway debt will be affected by a ruling expected on Wednesday by Germany’s Federal Constitutional Court, in which it will decide whether Berlin is breaking German law and European treaties by contributing to bailouts for Greece, Ireland and Portugal.
Legal experts say the court probably will not completely block the contributions, but will give the German parliament a bigger say in approving them.
That could further stretch tensions surrounding the euro, since German public opinion has been increasingly against providing more German rescue aid for Europe.
Greece will find out on Friday how keen private investors are on a bond swap aimed at whittling down its 340 billion euro debt.
The euro crisis is an increasingly heavy burden for the German government under Angela Merkel, who is facing a particularly tough week. We spoke about that with Claudia Kade, Berlin correspondent of the Financial Times Deutschland.
euronews: “Claudia, the ruling coalition parties have just suffered another severe defeat in a state election. Is that the result of a failed attempt to explain to people Merkel’s action during the euro crisis?”
Kade: “I think yes, absolutely. Chancellor Merkel, who is also chairwoman of the Christian Democrats, has followed an unprecedented course of political shilly-shallying in the euro crisis. The image she and her political junior partner, the Liberals, have created is absolutely devastating. And I think that voters just don’t like that. Voters don’t want to be governed by a coalition that is hopelessly divided. We are in such a serious crisis that people want leadership, but don’t get it. That’s why Merkel’s latest electoral rout is a reaction to her indecisiveness over Europe.”
euronews: “Let’s talk about this week’s agenda now. On Tuesday, finance ministers of Germany, Finland and the Netherlands meet in Berlin. That looks like a get-together of the toughest critics of the Greek bailout. Given the rising doubts over the Greek austerity programme, what can we expect from this meeting?”
Kade: “What is at stake here is simply a plan of what Europe should look like in the future. Whether there is going to be a two-class Europe with, on the one hand, a group of countries that are able to manage their finances and keep their debts under control and a second debt-ridden Europe that is left behind. Germany’s finance minister Schäuble and his two colleagues from Finland and the Netherlands want to determine what the conditions are for financial support. Should the creditor countries claim special guarantees from countries like Greece and so on. The Berlin government is getting increasingly uneasy about Greece, now that we have learned that there are more and more doubts concerning the Greek reform programme.”
euronews: “On Wednesday, the German Constitutional Court issues its ruling on the European Financial Stabilisation Mechanism. Analysts don’t believe that the court will declare the EFSM unconstitutional, but has the government reason to fear the ruling?”
Kade: “Yes, the wording of Wednesday’s ruling will be of the utmost importance for Angela Merkel. The court will determine how much political power she will have in Brussels, how firm her commitments and promises will be at EU summit meetings .. without the Bundestag repealing her decisions a few weeks later. The court’s ruling will greatly decide the future maneuvering room for the chancellor with regard to the balance of power between her and the members of parliament.”
euronews: “By addressing Congress on Thursday, President Obama tries to seize the initiative in terms of crisis management. Do you think Angela Merkel needs to take such bold action as well?”
Kade: “Well, it would be absolutely necessary, indeed. But I am very, very doubtful whether she would do such a thing. She is neither a great orator, nor a women who can appeal to an audience’s emotions. She could seize the opportunity and give a speech on Wednesday in parliament when the budget debate starts. Traditionally, a chancellor can use this moment to lay out the big policy principles. And given the current crisis, that would be absolutely necessary. People want to know what’s in store for them in the future in the Europe where the German chancellor leads them. But my guess is that Merkel will not seize that moment.”