This is an addition to my piece above. Germany always has to be the buzzkill. During the eurocrisis whenever it doesn’t get its way, it begins claiming that the compromise is “illegal.”
Germany trots this term out to suit itself. Remember that the ECB purchased over €200bn in PIIGS bonds to support the market amounting to illegal fiscal transfers and stands ready to do so with OMT. While the Bundesbank pointed out that these actions are illegal, Merkel approved of them wholeheartedly.
The two ideas that Germany has declared illegal are cutting Greece’s interest rate and returning ECB Greek bond profits to Greece.
For the former, Schaeuble’s position is that giving Greece lower than cost financing amounts to a fiscal transfer. For the latter, since the Bundesbank has half the profits from the Greek bonds rather than the German treasury, this would again amount to a fiscal transfer.
This whole episode is following the 4th Iron Law of the Eurocrisis. Merkel has her crisis. Let’s see if she can get something done.
One important thing to remember is that Greece will not run out of money for quite some time, so this may drag on for a few more weeks.