Merkel and Schaeuble are preparing the German voters for additional ECB financing of sovereign debt. Today, she told crowds that “bailouts are here to stay” and that Greece deserves the support of the German people as long as the Greeks keep reforming their economy.
Her Finance Minster, Wolfgang Schaeuble, is preparing the German electorate for these bond purchases. He claims that the ESM is constitutional under German law. I am not sure whether or not the ESM is constitutional, but I do know that the German constitutional court will not rule against the ESM:
Schaeuble also claims that the ECB will only act within its mandate. The ECB’s old mandate was a 2% inflation target. The ECB’s new mandate apparently includes stimulating credit creation in the Eurozone. At least, that is the excuse that Draghi is using to fire up the printing press:
Merkel’s politicking does not stop at preparing the German voters for the inevitable monetization of PIIGs debt. She also places the blame for the Eurocrisis at the feet of the “markets.” From the article,
Markets can’t be allowed to destroy the fruits of people’s labor and governments can’t be put at their mercy through excess debt, the chancellor said.
Markets do not destroy the fruits of people’s labors; in this case, governments do. Excessive government spending distorts the economy in so many different ways, but its most pernicious effects are the destruction of labor markets and the eventual devaluation of the currency. Greece and Spain both have unemployment rates over 20% and that number skyrockets into the 50’s for those under 25.
In conclusion, this is Merkel’s political strategy to keep the Eurozone on the rails until she wins German elections in the autumn of 2013. First, keep the PIIGs barely alive by trickling money through their feeding tubes in exchange for harsh economic reforms that show the German voters that she is being “tough.”
Second, allow the ECB to finance sovereign markets under the ruse that this action is within its mandate as long as the PIIGs continue to be humiliated to appease German voters.
Third, the blame for the Eurocrisis must be shifted to those evil speculators rather than the politicians who spent too much money when times were good and who refuse to do the responsible thing now.
As long as nothing unexpected happens, this plan should work. Good luck, Frau Merkel.