Is there life after Fiscal Compact? Judging by what transpires from the Chancellery circles these days, perhaps yes. The approval of budget pact by the European Council on 30 January was exactly what the German Chancellor wanted to show the rest of the world that the Eurozone is serious this time around. On the other hand, this new international treaty is not enough for Germany either.
It is not enough because, as the president of the Bundestag Norbert Lammert (CDU) and the head of Bundesbank Jens Weidman, there is no assurance that the draconian tightening of parameters will have any outcome other than the Stability and Growth Pact (SGP), also violated in unsuspecting times also by Berlin. The new norms are in fact norms of international law agreed between the states of the Eurozone and some member states of the EU and are not likely to confer new powers on the EU institutions. This is why the issue to be resolved in the coming months will be that relating to the incorporation into the Treaties of some of the provisions present in the Fiscal Compact.
Given the legal and political obstacles to such an operation, it is actually likely that Germany will try to implement the new rules and possibly to create a common competence in the field of economic policy, proceeding on the path of peer pressure, a typical element of the procedure that has been in force for a year now and is better known as the "European Semester". On the other hand, Mrs Merkel will continue to endorse the ECB's secondary market purchases of government bonds, while the German exponents will certainly not stop supporting Mario Draghi, when it comes to the end of February approve a new long-term refinancing program for banks.
After that, in early March, after the official signing of the treaty, it will be a question of addressing the other issue, which has become topical again after last January 23, from Berlin, Christine Lagarde, director of the IMF, urged the Chancellor and his Finance Minister to broaden the firepower of the EFSF financial stabilization fund, possibly combining it with the ESM, the vehicle that will enter into force in July.
According to what was reported at the end of the month by the newspaper Financial Times Germany, Germany, who has so far sipped his yes to the increase in the endowment of the funds, it would now be ready to create a 1.500 billion mega-fund, provided that the IMF does its part at the same time. But for the IMF to be able to act, it is urgent to find an agreement with the United States and emerging countries.
Mrs. Merkel has recently traveled to China, precisely to convince slant-eyed investors that the choices made in recent weeks between Berlin and Brussels put the Old Continent on more solid foundations. Until now, Bric investors had in fact remained on the sidelines, showing skepticism towards the rescue tools prepared in Europe.
For the rest, much of what will be decided will depend on how the problem of the Greek debt restructuring will be tackled in the coming month. Again on Thursday, Finance Minister Wolfgang Schäuble said he was against a haircut also for securities held by public entities, the ECB in primis. We'll see how long this position can be maintained.
