By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Cross posted from Testosterone Pit.
No debacle is allowed to interfere with Chancellor Angela Merkel’s efforts to hang on to her job, and any debacles get swept under the rug at least until after the elections on September 22. Every time uppity opposition voices stir up some controversy, it’s brushed off, denied, ridiculed, or minimized – and it has worked admirably well so far.
Even Edward Snowden’s revelations day after day in Der Spiegel – which had received copies of documents detailing German involvement in NSA spying activities, among other sins – were successfully shuffled off. Though the discussion continues to be heated, it is, like in the US, a bi-partisan debacle, compromising political figures from both sides. The scandal is spreading and festering, but apparently without political fallout.
So time is running out for Peer Steinbrück, the SPD’s candidate to unseat one of the most popular German politicians. And when Finance Minister Wolfgang Schäuble, for whatever reason, mentioned a week ago that Greece would need a third bailout, Steinbrück jumped on it. Another debacle! Turns out, Greece, though it has disappeared from the media, hasn’t disappeared from the list of bankrupt euro states. And Steinbrück needs to do something fast to change the election math.
If the election were held next Sunday, a series of weekly surveys, has been fairly consistent: 41% of the vote would go to the governing CDU/CSU and 5% to their coalition partner, the FDP, barely squeaking over the 5% minimum to get into the Bundestag. Together, the coalition would have 46% of the vote. On the other side: the SPD would garner 22%, the Greens 11%, and the Left Party 10%, giving their coalition 43% of the vote. The remainder wouldn’t clear the minimum.
Barring a big debacle, Merkel, the consummate political animal, is going to hang on to her job. But she might have to make some unpalatable deals or perhaps enter into a Grand Coalition with the SPD. This too has been done before, most recently under her first mandate from 2005 to 2009, when her current challenger, Steinbrück, was her Minister of Finance.
Now a third bailout of Greece has bubbled up just before the election, rather than afterwards; but it would only be €10-11 billion. Minimizing it. That’s the policy. Without that money, Greece would go bankrupt. The prior two bailouts, each of which was ultimately much higher than initially envisioned, and each of which would cure, once and for all, the ills plaguing the country, amounted to €240 billion. This was crowned with a €107 billion haircut for private-sector bond holders.
With Greece, it’s never enough. Carsten Schneider, budgetary policy spokesman for the SPD, had gotten word from the Troika that, according to its latest analysis, Greece would in fact need €77 billion in addition to the €11 or so billion to get through to 2020. The new hole was created by a deteriorating economy and a complete lack of progress in privatizing the state-owned business apparatus. So Schäuble “must put the actual numbers on the table quickly,” and before the election, Schneider demanded.
And then Merkel herself spoke. She was angry. At a rally on Tuesday, she was defending her bailout policies that are getting increasingly expensive for German taxpayers. The Eurozone “is such a treasure, such a boon, that we can’t place it in doubt,” she said. “For this reason we’ve shown solidarity, but solidarity always linked to responsibility for reforms in those countries that experience our solidarity.”
She lashed out against these attacks from the left, and against Steinbrück who’d accused her of silencing to death the true costs of her bailout policies, and she pointed her finger at them: “Chancellor Schröder picked up Greece and softened the Stability Pact,” she said about her predecessor. “Both decisions were fundamentally wrong, and one of the starting points for our current troubles.” Then she said what others have said for years: “Greece shouldn’t have been allowed into the Eurozone.”
How do you fix that problem? More bailouts. The third bailout package for Greece now on the table will keep growing as time passes. And on Monday, Greek Finance Minister Stournaras put “renegotiation” of the €240 billion in debt from the first two bailouts on the table, ostensibly to ease the burden. But in the notorious Eurozone incrementalism, renegotiation of rates and terms would just be another stage on the way to debt forgiveness.
And debt forgiveness is officially off the table until after the election. An explosive topic. Since European central banks and bailout funds hold that debt, it would hit taxpayers – and German taxpayers more than any other – if it were forgiven. The costs would suddenly have a real number that could no longer be swept under the rug. And so, Merkel made another effort on Sunday to wipe it back off the table. “I am expressly warning against a haircut,” she said. “It could create a domino effect of uncertainty … in the Eurozone.”
And so, nothing has been resolved in the Eurozone where no price is too high in order to keep it intact, to keep all members, even Greece, in what has become a debt transfer club – from private investors to the public – since the euro, as Merkel had said so eloquently, “is more than a currency.” Because for her and her ilk, it has become a religion.
“The largest espionage scandal in the 21st century is shaking Germany,” wrote Steinbrück in an effort to use the NSA spying activities to unseat Merkel. And it has been one heck of a scandal.