The key to the crisis remains Germany not Greece

29th September 2011

German Chancellor Angela Merkel avoided the potentially humiliating need for votes from the Social Democratic and Green opposition parties as Reuters reports, securing enough votes from her own Conservative MPs this morning. A failure to win the support of her own allies would have been a huge blow to Merkel's ability to deliver any further action.

Yet even before the vote, the bloggers were suggesting that this vote is only one hurdle in a wider crisis because the funds involved are not sufficient.

William Boston, writing in the Wall Street Journal blog – the Source – says: "The next game is already under way. Everyone knows that the expansion of the EFSF facility to €440 billion is a big step, but not the bold step that was demanded last weekend at the meeting of the International Monetary Fund in Washington. Even as they are ready to pass the EFSF, German deputies tell me that the new line in the sand is the next bailout fund, the permanent European Stability Mechanism that is planned to replace the EFSF in 2013 (or possibly even earlier)."

It is no surprise therefore that commentators are arguing that it is not about the Greeks, it's about the Germans.

The Telegraph's Head of Business Damien Reece made the point forcefully this week.

He wrote: "The Greek deficit and German surplus are not separate issues. They are simply two faces of the same problem, two forces creating the one state of imbalance. If Berlin believes Athens should deal with its deficit through austerity, then it must compensate to rebalance the system through stimulating European-wide growth through spending or subsidy."

Reece also points out that Germany has benefitted massively from the euro and arguably from the imbalances within it. Capital became cheaper for its companies while other eurozone markets did not devalue to maintain their competitiveness further boosting Germany's boom.

The pressure is certainly on Europe from elsewhere. President Barack Obama has twice this week urged Europe's politicians to get on with it as Bloomberg Business Week reports, but it was a German politician who rejected the advice.  

Finance minister Wolfgang Schauble told Washington to mind its own business. He also had heated words for the European Commission. Elsewhere the Telegraph reports that Schauble said it would be a folly to boost the EU's bail-out machinery (EFSF) beyond its €440bn lending limit by deploying leverage to up to €2 trillion, perhaps by raising funds from the European Central Bank.

"I don't understand how anyone in the European Commission can have such a stupid idea. The result would be to endanger the AAA sovereign debt ratings of other member states. It makes no sense," he said.

These are forceful words, but does Germany's finance minister really mean it?

On the Telegraph comment boards, Harper 1970 is doing some reporting of his own.

"I'm just watching the debate live and Schauble was just asked if this EFSF will be 'leveraged'…he did not answer the question. He avoided the question and started to attack the questioner saying that no one knows what the future will bring…that he was being rude and its dangerous to speculate!. That the questioner was 'dangerous' for asking questions when the sums are so huge! Absolutely incredible…these sums could bankrupt Germany and the questioner is  'dangerous' for asking about it? What's happening right now in Berlin is the end of democracy in Germany…it really is that historic..and…dangerous."

One might even suggest he is preparing the ground for the next game – that Euro two trillion fund.

For the moment, Berlin is out of the eye of the crisis. But probably not for long.

More from Mindful Money:

Eurozone crisis: So what is the solution?

European debt crisis: what is the answer?

Eurozone – whose fault is it anyway?

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