German Chancellor Angela Merkel returns to the front line of the European debt crisis this week as the bloc’s leaders squabble over measures including bond purchases to relieve concerns the single currency may fragment.
Merkel ends her summer vacation to oversee a Cabinet meeting Aug. 15 before departing for Canada and talks with Prime Minister Stephen Harper as the spiraling crisis threatens the global economy. With policy makers awaiting a German high court decision on bailout funding next month, they’re struggling to smooth divisions over a European Central Bank plan to buy the bonds of indebted nations.
“To ensure that such interventions help to bring down bond yields in a lasting way, they will only be available for member states that pursue sound budgetary policies, adopt structural reforms for growth, and address macroeconomic imbalances,” European Economic and Monetary Affairs Commissioner Olli Rehn said in an op-ed published in the Wall Street Journal today, without specifying any nation by name. Those states face a “formidable challenge,” with “little breathing space to adopt the game-changing reforms that are essential for long-term gain.”
“It is not our base case that the constitutional court will block the ESM, though it will likely be a close decision,” Joachim Fels, chief economist at Morgan Stanley in London, wrote in a note to clients yesterday. Still, the judges “could well attach conditions that will make it difficult for the government to make further integration steps.”