When a former German finance minister characterizes the euro zone as a “Haftungsgemeinschaft,” a community of liabilities, even the most fervent euro supporters might have pause for thought.
Given the massive liabilities crippling a number of euro zone countries, this is hardly a siren call to attract potential buyers to the single currency.
Instead, the disagreement it exposes, as Germany’s political elite prepares for next year’s federal election, might see the euro come under gentle pressure in a thin August market and re-test the month’s low of $ 1.2132.
Of course, the center-left Social Democrats’ (SPD) Peer Steinbrueck, was trying to be constructive, backing his party chairman Sigmar Gabriel’s recent call for common debt issuance in the euro zone, despite popular opposition to it in Germany.
However, the mere fact that the SPD has embraced common euro zone debt issuance might just harden the stance of the center-right governing coalition in Berlin, led by Christian Democrat (CDU) Chancellor Angela Merkel, against such a move.
There were arguably signs of a harder line on Greece from CDU deputy parliamentary leader, Michael Fuchs yesterday. He said Berlin would not hesitate to veto further aid if Athens showed signs of backsliding on the conditions of its bailout. “We long ago reached the point where the Greeks must show they are capable of delivering a shift. A policy of the last, last, last chance won’t work anymore and must come to an end,” he told Handelsblatt. Fuchs may have one eye on the local political scene but that does not mean his comments could not have consequences for the euro if they again raised the spectre of a chaotic Greek exit from the currency bloc.
Merkel has much to contemplate as she returns to her office. Investors may fight shy of the euro while she cogitates.
Talk that could take a toll on the euro is not just the preserve of Germany. Belgian central bank governor and European Central Bank policymaker Luc Coene said at the weekend that further help to indebted countries would have to come under strict conditions.
“As we experimented with Italy during the summer of 2011, if we take on the pressure of the markets, the pressure on political authorities disappears,” Coene said in a recent newspaper interview.
The message is clear — no revival of the ECB’s bond-buying program without pre-agreed clear obligations on debtor governments to sort out their finances.
It remains to be seen whether the debtor countries’ leaders can sign up to such obligations given the political costs already incurred by the adoption of previous austerity programs.
The Olympic Games may have ended in London but the political games in the euro zone may be hotting up again.