From David Warner, Assistant Editor @ Daily Telegraph – Is the cost of saving the euro beyond reach?:
…although the parties that gained at the CDU’s expense all substantially share Mrs Merkel’s view that the euro must be saved, the chancellor’s room for manoeuvre – not just on nuclear, but on Europe and just about everything else – has been severely compromised.
She has become a lame-duck head of state who will in future largely be limited to no more than defending and pursuing the majority German view; on Europe, that means no transfer union, no European bonds and no further expansion of the bailout fund. There’s no public support for these things in the country, and they are in any case against its constitution. Mrs Merkel must now pay more than just lip service to the no-bailout principle. She can no longer drag her voters kicking and screaming behind her in pursuit of ever greater European solidarity.
Where does that leave the single currency?
… what is clear is that monetary union is fast approaching the outer limits of the politically possible. Germany will go no further, despite the fact that its economy is for the moment doing rather well from the single currency (it’s about the only one that is). Voters will not be persuaded to put more money into subsidising the profligate fringe. But the austerity that the absence of a transfer union imposes on the periphery is also testing democratic acceptability to destruction. The immovable object is meeting the irresistible force. On top of everything else, Europe’s beleaguered fringe economies will soon have to cope with the ECB’s determination to put up interest rates…
For at least three eurozone members – Ireland, Portugal and Greece – it has long been obvious that the debt burden is overwhelming the countries’ ability to pay. At the height of the banking crisis, Ireland made the fatal error of guaranteeing the liabilities of its entire banking system in a desperate effort to halt the flight of capital.
That promise has come home to roost in devastating manner. Irish taxpayers were on Thursday forced to agree a further €24bn injection of capital into their banking system, a sum equating to 23pc of annual GNP. Even that may not be enough to restore confidence and get the system functioning again. Ireland and others have entered a classic debt trap in which, however much austerity is imposed, it won’t be enough to ease the problem.
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