The financial world will look to the Bundestag on ThursdayImage: dapd
September 26, 2011
With Athens creeping ever closer to the precipice of bankruptcy, the financial world will be looking to Germany this week as it votes on deepening the EFSF rescue fund. But does the Bundestag really have a choice?
The German parliament on Thursday is faced with whether to increase its contribution to the European Financial Stability Facility, the EFSF, which is aimed at providing enhanced stability to the eurozone as it struggles to stave off its ongoing debt crisis.
Germany has been asked to increase its input to 211 billion euros from 123 billion ($283 billion from $165 billion), making it responsible for just under half of the entire package.
The move would be unprecedented for German budget policy and carries with it an array of unanswered questions, according to Carsten Schneider, budget spokesman for the Social Democratic party in parliament.
"First of all, we want to know whether this will be enough. What happens if Greece needs more guarantees? Or what about Italy? And what will happen on the markets if we don't approve the package and let Greece go bankrupt?"
Another decisive question is whether the German parliament even has a choice in this issue: Can the Bundestag really reject the EFSF increase? Schneider put this question to the head of Germany's central bank, Jens Weidmann, in a parliamentary budget committee meeting.
"I believe that nobody could paint you a credible scenario of what would happen if we allow Greece to go bankrupt," the Bundesbank chief said.
"I can assure you, however, that not only Greece would face the difficulty of this scenario. Many other eurozone countries would also be adversely affected."
In the face of his reticence to allow a Greek default, Weidmann made clear to the committee how he felt about augmenting the EFSF, which he sees as a further step toward the creation of a shared liability in Europe that will ultimately diminish fiscal discipline among the participating member states - without increasing financial monitoring of national budgets.
"How credible are the rules of this new stability and growth package," Weidmann asked with a rhetorical undertone, "if we establish a system that allows offenders who fail to meet guidelines on multiple occasions to await rescue packages?"
Economic facts versus politics: These are the poles between which the members of the German parliament find themselves. Will they follow Merkel's government - the representative of the political will at all costs - or will they apply the brakes in recognition of the fact that Germany's economic potential is ultimately limited?
This won't be the last time Bundestag parliamentarians will be faced with making the decision to increase the EFSF, Clemens Fuest, an economist at the University of Oxford, told Deutsche Welle.
"With all due respect for the resolutions of the Bundestag, even this decision to increase the German contribution to 211 billion euros will soon be invalid. This will come at the latest when financial markets lose their confidence in Italy," Fuest said.
"Global capital markets aren't interested in the size of any rescue package," Fuest continued, but rather in the question of whether "Europe is ultimately interested in keeping its monetary union." As long as the political will is there, markets will bank on further rescue packages and the subsequent stability.
That is, of course, unless the Bundestag resists in its vote on Thursday.
This is entirely possible, if one considers the German constitutional court's recent judgment that the Bundestag has the final say when it comes to rescue measures funded by taxpayers.
The practical feasibility of such a system when funds are needed in an emergency - which could be the case when it comes to Italy - is one of the main issues raised by the court's decision, according to EFSF managing director Klaus Regling.
"You've got two days at the most when government bonds have to be sold on stock markets. We must not forget that such a facility must be able to act fast," Regling said.
The Bundestag is thus not only voting on whether to increase its contribution to the EFSF; legal guidelines are also to be established that determine the Bundestag's influence in the fund's future decisions.
With regard to basic resolutions, such as the decision to provide funds to any further eurozone members, the Bundestag is meant to make the decision for Germany. If the Bundestag opposes any rescue package, Germany's representative at the EFSF must also vote against.
In emergency situations, the Bundestag is to be represented by a budget committee made up of representatives from all parliamentary groups. But these people are also just members of parliament, who in the future will be asked to carry an even greater responsibility.
Whether this decision-making process is tenable in the long run is a question economists are posing. Rudolf Hickel of the Univerity of Bremen, for one, is skeptical of the ability of non-expert politicians to make such decisions.
"Unfortunately they must work without the help of blue prints and make these decisions only with a limited understanding of the issues. We can only attempt to inform the parliamentarians as best we can."
"European politics must come up with a solution that keeps financial markets in check. Only then will institutions such as the Bundestag be able to act and reacquire the influence that has been taken from it."