Less than 10 days after European leaders announced a “shock and awe” €750bn plan to save the eurozone, the shock on Wednesday was that Germany had taken an unexpected approach to the sovereign debt crisis without acting in unison with its European Union allies.
Germany’s ban on complex transactions in euro-area government bonds surprised the European Commission, which is responsible for drafting EU-wide financial regulation, and France, which for five decades has been Germany’s indispensable partner in moulding Europe.
Berlin’s decision to go it alone appears to have been driven by political considerations rather than regulatory zeal, with the move designed to quell disquiet in the Christian Democratic party of Angela Merkel, the chancellor.
She wants legislators on Friday to approve €123bn in emergency loan guarantees for the eurozone, Germany’s contribution to the €750bn plan. It will be the Bundestag’s second vote in less than two weeks on inter-governmental financial aid of a kind Ms Merkel once promised would be unnecessary.
“The pressure on our members of parliament in their constituencies is enormous,” said Volker Kauder, the CDU’s Bundestag leader. “The voters can’t justify these kinds of sums, so we needed to send a signal that we were doing something to make sure it won’t happen again.”
Nonetheless, the ban is likely to rekindle doubts in non-European governments as well as financial markets about whether the eurozone’s 16 countries have the strength or desire to forge a consensus on tackling the debt crisis.
Similar concerns arose in September and October 2008, when Germany, Greece, Ireland and the Netherlands each took unilateral steps to protect their banks and depositors as Europe’s financial sector lurched towards the abyss.
In that case, EU leaders soon settled their differences, agreeing that no country should take actions that risked damaging its partners’ interests or the single European market.
The risk of “regulatory fragmentation” is present on this occasion, too. In a pointedly worded statement on the German move, Michel Barnier, the EU’s internal market commissioner, said: “These measures will be even more efficient if they are co-ordinated at European level.”
Germany is not alone in its hostility to “naked short selling” – in which a trader sells a financial instrument without first having borrowed it or made arrangements to borrow it. Austria supports Germany, and Portugal has prohibited naked short selling since 2008.
But Germany’s step illustrates how the €750bn plan, unveiled on May 10, has not healed disputes among European leaders on how to protect the eurozone against disintegration.
Germany, the foremost advocate of central bank independence, fiscal prudence and no bail-outs for irresponsible governments, views matters differently from France, with its emphasis on political control of economic policymaking and on the need for strong countries to show solidarity with the weak.
Such differences have surfaced repeatedly over the past three years, with Germany rebuffing French ideas for a common European bank bail-out fund and eurozone bonds. They also clashed over whether to involve the International Monetary Fund in Europe’s sovereign debt problems.
Diplomats said Berlin resented criticisms voiced in other EU capitals to the effect that it had dragged its heels, both on a €110bn rescue package for Greece agreed on May 2 and on how to disburse loans to applicant countries under the €750bn plan.
This plan provides for a €440bn rescue fund, but Germany – as the fund’s biggest contributor – objects to the idea that eurozone governments should back it with a single, comprehensive loan guarantee rather than guarantee aid packages case-by-case.
“Germany feels isolated and misunderstood,” said Katinka Barysch, deputy director of the Centre for European Reform think-tank. “The rift, if badly handled, could make Germany’s stance towards the EU more hard-nosed and inward-looking.”
A lack of personal chemistry between Ms Merkel and Nicolas Sarkozy, France’s president, has contributed to the strained atmosphere of EU decision-making, diplomats said.