German government to stay course in euro crisisSeptember 23, 2013 @ 2:12 pm
FRANKFURT, Germany (AP) - The big win for Angela Merkel's conservative party was an endorsement by German voters of her tough policies in tackling the euro currency union's government debt troubles. So don't expect any big change in course from her.
Merkel ran for re-election on her basic formula: help financially weak countries but impose harsh conditions, such as deep budget cuts and politically painful economic reforms.
One fact that could affect her policies is that she will change coalition partners. Her previous one, the Free Democrats, did not make it into parliament. So she'll have to share power with one of two left-of-center parties, the Greens or _ more likely _ the labor-union backed Social Democrats. The Social Democrats campaigned for less emphasis on austerity in Europe, but they're otherwise mostly in line with Merkel's approach.
Holger Schmieding, an economist at Berenberg Bank in London, says such a coalition would result in only "a minute softening of the German stance toward euro crisis countries."
The major issues:
A new government could be somewhat more willing to fund European spending on infrastructure and to help small businesses. That could help get growth going in places like Greece, Portugal, and Spain. A chief complaint against Merkel's policies is that austerity lengthened recessions and worsened unemployment in those countries. The Social Democrats have called for more support for the EU's European Investment Bank, which loans to small businesses that have been having trouble getting credit. But Merkel's current government has recently already moved in that direction, offering to help businesses in Spain and Portugal to get financing. It has also relented on the pace at which EU member countries must meet the union's requirements to reduce deficits.
Merkel's new government will keep rejecting the idea of eurobonds, under which all 17 euro members would share responsibility for paying public debts. Such bonds would help solve the crisis because financially weaker countries would be able to borrow cheaply, ending concerns about their solvency. But richer countries like Germany would see their costs of borrowing increase. The Greens back eurobonds, but lack the support to force the issue.
Germany may compromise on setting up a European Union-wide agency that could restructure failed or troubled banks so that taxpayers don't have to bail them out. The current finance minister, Wolfgang Schaeuble, has been reluctant to set up such an agency, arguing it would require a years-long effort to change EU treaties. He has advocated using a network of national regulators until that can happen. It's not clear whether Schaeuble will have the finance minister job in the new government.
THIRD GREEK BAILOUT
Even Merkel and Schaeuble have conceded Greece may need more financial help, despite two earlier rounds of bailout loans from the eurozone rescue fund and the International Monetary Fund. A new coalition might agree more easily to added help, possibly in the form of loan extensions, lower interest rates or a cut to the bailout loans to be repaid. Greece's additional needs are estimated at around 11 billion euros ($14.9 billion), much less than the first two bailouts, which totaled 240 billion euros ($324 billion).
But make no mistake _ the help would again come with tough conditions attached.
As Jennifer McKeown, an analyst at Capital Economics in London, put it: "Germany will continue to advocate austerity at home and in the region's periphery."
(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)
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