Germany: A grand coalition may trouble employers and bankers

Discussion between Angela Merkel, German Federal Chancellor, 3rd from the right, and Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the EC, 3rd from the left, in the presence of Dalia Grybauskaitė, President of Lithuania, on the left, and Herman van Rompuy, 2nd from the right (in the foreground). They all pay attention to what the German Chancellor has to say.(EC Audiovisual Services).

Discussion between Angela Merkel, German Federal Chancellor, 3rd from the right, and Catherine Ashton, High Representative of the Union for Foreign Affairs and Security Policy and Vice-President of the EC, 3rd from the left, in the presence of Dalia Grybauskaitė, President of Lithuania, on the left, and Herman van Rompuy, 2nd from the right (in the foreground). They all pay attention to what the German Chancellor has to say. (EC Audiovisual Services).

The very likely formation of a grand coalition government in Germany, led by the CDU-CSU Christian democrats, under Chancellor Angela Merkel and comprising the SPD socialists, will not be without tangible results in at least two crucial fronts. The wages of Germany’s hard working millions and the long overdue rearrangement of Eurozone’s banking system, are two prime fields that the socialists will bargain hard.

There are already indications that this possible grand political compromise, will let down a lot of people. Already the lobby of the German industrialists issued a Press release yesterday, asking Merkel not to be soft in countering the socialists’ demands for large wage increases. They argued that the success of the country’s export machine may be compromised. In the financial filed there are strong indications also that the possible formation of a grand coalition government, may greatly affect the end arrangement to re-shape Eurozone’s banking system.

Paying for failing banks

The top leadership of SPD has made clear that they will not accept the re-launch of the European banking system to be based on European Stability Mechanism’s guarantees and loans, at least not exclusively. As things stand now, the Banking Union is completely stuck. The problem is who will pay for the cost of a possible resolution of failing Eurozone banks? The taxpayers through the ESM? The bankers themselves through the single resolution fund? Or both? To be noted that the largest part of ESM’s money come from the German taxpayer.

What Mario Draghi, the President of the European Central Bank, said to European parliamentarians last Monday was characteristic. He told them that, “until the (single) resolution fund is fully financed, it should be able to borrow from other sources, including national ones, to ensure that properly-funded resolution (of banks) is an option from the start”. In this way Draghi proposes to divide the cost of the enactment of Eurozone’s Banking Union between the ESM and the member states, at least at the initial stage.

Obviously the President of ECB meant that the resolution money to clear failing banks will come initially as loans from the ESM, plus contributions, under some financial form, from the member state or states, where the bank or banks conduct their business. The method of dividing the resolution cost of a failing bank between countries was followed in the case of the Belgian- French-Luxemburgish, Dexia Bank, with the three governments paying for it.

However the country or the countries involved might be already over indebted and run the danger of going bust, if they undertake the full cost of a major bank resolution. The case of Cyprus was characteristic of that. According to Draghi for this danger to be addressed, the ESM should contribute a part of the bill, at least at the initial stage. The extend of the contribution will be probably decided ad hoc.

Whatever the arrangements on the spot for a bank resolution, the ESM would get for sure its loans back from the Single Resolution Fund, which will be capitalised by a levy on all Eurozone’s lenders. There is one more point here that has to be clarified. Will the Resolution Fund be obliged to repay also the contributions made by governments? SPD may go for that.

If the answer will be yes, then the banks will find themselves in a completely new environment, where ECB’s supervision and their obligation to pay in full for all their sins, will force them to change completely the way they are doing business. By the way, ECB announced yesterday that it has appointed the firm ‘Oliver Wyman’, to support the preparation and implementation of the comprehensive assessment of the significant Eurozone banks which will be directly supervised by the ECB.

Socialists vs bankers

Coming back to the German socialists it is more than certain that they will sell very dearly the few votes that Merkel needs in the Bundestag. Their previous experience in the 2005-2009 grand coalition government with the Christian democrats left a bitter taste, and they haven’t recovered yet. On top of that there might be occasions that the Merkel government might need more than a few votes to pass a controversial bill, some members of her party could reject. In any case the socialists have already left to be understood that their participation in the government should lead to visible policy changes, closer to their positions.

The problem for Merkel is that she cannot easily deny the demands of the socialists, because there is no plan B for her to form a government. A coalition with the Greens or Die Linke is out of question for CDU/CSU. Then what? Hold a new Election? The Germans might punish severely Merkel, if she decides something like that. In view of all that Merkel has already stated that she is in favour of compromises and has come in contact with the SPD leadership.

No doubt then that the SPD will insist to get the maximum on all fronts. Satisfactory wage increases will be their most important target. As for the bank resolution mechanism, they will reject outright the idea of the ESM lending heavily to the resolution fund. They negotiate then the extend to which national governments will contribute in eventual resolutions and will examine the possibility that the sovereigns get their money back partially or in total from the resolution fund and the bankers.

In conclusion the SPD positions are very likely to shape the future of Germany and the European Union alike, in a much greater degree than their electoral score.

Advertising

Advertising

Advertising

Advertising

the European Sting Milestones

Featured Stings

Stopping antimicrobial resistance would cost just USD 2 per person a year

OECD economic scenarios to 2060 illustrate the long-run benefits of structural reforms

Cybersecurity needs a holistic approach. Here are three ways to build protection

UN forum to bring ‘big space data’ benefits to disaster response in Africa

Schengen is losing ground fast revealing Europe’s clear inability to deal with migration crisis

Reception conditions for asylum-seekers agreed between MEPs and Council

Zuckerberg, a paella, and the mighty EU questionnaires that would stop Whatsapp acquisition by Facebook?

How India will consume in 2030: 10 mega trends

Bankers don’t go to jail because they are more equal than us all

US – Russia bargain on Syria, Ukraine but EU kept out

Mobile 360 Series – Russia & CIS: Empowering the Digital Economy

Action needed to end deadly clashes between African herders and farmers: UN chief

The time for cities to get smart is now

The missiles fired against Damascus, Syria divided Europe deeply

Youth Internationalization: part of everyday life in JADE

Germany to help China in trade disputes with Brussels

Germany is the world’s most innovative economy

4 steps towards wiping out cervical cancer

UN chief ‘following very closely’ reports of chemical weapons use in Syria’s Aleppo

5 ways blockchain can transform the world of impact investing

We could be sleepwalking into a new crisis. How should the business world prepare?

Donald Trump’s victory is a great opening for global EU leadership on the sustainability agenda

UN calls for support to implement Central Africa’s newly minted peace agreement

German opposition win in Lower Saxony felt all over Europe

Germany loses leading export place

EU agricultural production no more a self-sufficiency anchor

MEPs back plans to halt spread of drug resistance from animals to humans

Superbugs: MEPs advocate further measures to curb use of antimicrobials

Britain heading to national schism on exit from EU

Vaccine hesitancy: a pregnancy related issue?

EU deal on electricity market rules to benefit both consumers and environment

FROM THE FIELD: South Sudan’s green shoots, highlight environmental recovery from war

ECB: Growth measures even before the German elections

More women than ever before are running for political office in the US

The European Union’s Balkan Double Standard

The “Legend of the Sun” wishes you Happy Chinese New Year 2015 from Brussels

Social entrepreneurs can change the world – but these 6 things are holding us back

Migration crisis update: Greece could probably say goodbye to Schengen really soon

Innovation is the key to the pay-TV industry’s long-term growth

Bureaucracy in the member states again the obstacle for long due strong European Hedge Funds

EU car manufacturers worry about an FTA with Japan

Why Eurozone needs a bit more inflation

Chart of the day: These are the cities where the World Cup threatens productivity the most

Crimea, a wicked game of political chess and a ‘big’ coincidence

Art has the power to change the world, says this renowned Iranian muralist

Infinite Oath

G7 summit: Trump Vs. G6 leaders on trade and climate change

Who really cares about the 26.2 million of EU jobless?

Euro celebrates its 20th birthday

World cannot be transformed without ‘ingenuity of the countries of the South’: UN Chief

Making the most of the Sustainable Development Goal 3: its overlooked role in medical education

ECB reaches the boundaries of its mandate to revive the entirety of Eurozone

South Sudan’s women caught up in ‘futile man’s war’ UN gender equality chief

Japan initiates WTO dispute complaint against Korean duties on steel

Fear casts again a cold, ugly shadow over Europe; Turkey sides with Russia

Is there a drug for every disease?

A Sting Exclusive: “Climate change-the biggest global health threat of the 21st century, yet overlooked in climate negotiations?” IFMSA wonders from COP21 in Paris

Parliament backs a modernised EU electoral law

Bitpay @ TheNextWeb 2014: Innovation’s Best Friend

Basel III rules relaxed: Banks got it all but become more prone to crisis

What will it take for the world’s third-largest economy to empower women?

More Stings?

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s