It would be quite ironic and rather fitting if Germany and France fail to ratify the Merkozy treaty. 25 Nations have ratified the treaty but France and Germany still have not.

French president Francois Hollande has already threatened non-ratification unless the treaty is revised.

The Leader of the Social Democrat Party (SPD)in Germany, Frank-Walter Steinmeier, is making similar threats for the first time.

Effectively chancellor Merkel is painted into a huge corner with no wiggle room. “I guarantee you, there will only be a fiscal pact if it includes complementary growth elements,” Steinmeier said.

Specifically, Steinmeier wants a financial transaction tax, expansion of loan volume to the European Investment Bank, and a nebulous “strengthening of investment power”.

Steinmeier also called for the creation of a European debt repayment fund. He said that euro bonds could only be introduced “if they come with strict conditions and we have harmonized European economic and finance policy.”

Merkel needs those SPD votes because treaty ratification takes a two-thirds majority in the Bundestag, Germany’s parliament.

Merkel’s 6-Point Plan to Save Europe

Backed into a corner, Berlin Proposes European Special Economic Zones.

With Europe beginning to look for alternatives to its exclusive focus on austerity, the German government has developed a six-point plan to foster economic growth in Europe, SPIEGEL has learned. Included in the proposal is the creation of special economic zones in struggling euro-zone countries.

The proposal is part of a six-point plan the German government plans to introduce into the discussion on measures to stimulate economic growth taking place in the European Union. The proposal also calls for the countries to set up trusts similar to the Treuhand trust created in Germany at the time of reunification that then sold old off most of former East Germany’s state-owned enterprises in order to divest those countries’ numerous government-owned companies.

The plan also calls for the countries to adopt Germany’s dual education system, which combines a standardized practical education at a vocational school with an apprenticeship in the same field at a company in order to combat high youth unemployment.

The plan recommends that countries with high unemployment also adopt reforms undertaken by Germany, including a loosening of provisions that make it difficult to fire permanent employees and to create employment relationships with lower tax burdens and social security contributions.

Too Little Too Late

Some of those ideas seem quite reasonable. However, haven’t they been agreed to before?

How many times has Greece promised work-rule reform only to see nothing happening? Spain has not done much either. Nor has Italy.

Merkel Coalition at Risk

At every juncture, Merkel is increasing backed into a corner – by French President Francois Hollande, by ECB president Mario Draghi who sides with Hollande, by Mario Monti, Prime Minister of Italy, and now by the SPD.

As I see the demands, I fail to see how the 6-point proposal comes close to what SPD wants.

Here is the key question: Will the plan satisfy Social Democrats? If not, Merkel’s coalition government itself is at risk. 

Mike “Mish” Shedlock
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