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Wednesday, June 13, 2012 6:20 PM

German Vote on ESM Fails; Still Not Ratified by Germany, Austria, Belgium, Estonia, Slovakia, Netherlands; Political Football Over Financial Transaction Tax

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The Wall Street Journal reports European Economics Commissioner Olli Rehn expressed concern Monday that Germany, Austria, Belgium, Estonia, Slovakia, and the Netherlands were dragging their feet in ratifying the ESM.

In the meantime, the Journal reports Spain May Tap EFSF.

The article states "Power broker Germany has yet to complete the process but is expected to do so soon."

That is a distinct downplay of what is really happening.

Political Football Over ESM

In Germany, Chancellor Merkel does not have the votes to ratify the ESM. She needs help from opposition parties. Those opposition parties want a financial transaction tax before they will sign.

Last Sunday German opposition fumed before fiscal pact talks

A media report that German Chancellor Angela Merkel is not serious about implementing a European financial transaction tax threatens to undermine an initial deal struck last week with the opposition over the EU's planned fiscal pact.

Der Spiegel weekly reported on Sunday that Merkel's Chief of Staff, Ronald Pofalla, had said such a tax would not get passed in the current legislative period so the centre-right coalition could support the idea in principle knowing it would not have to act on it any time soon.

Last week, the government and opposition parties agreed on the outlines of a transaction tax proposal. On Monday, further talks between senior party members are due to take place and Merkel wants these to form a basis for a final deal when party chiefs meet on Wednesday.
Of course, Merkel responded she was really serious about financial transaction taxes as per this headline on Monday: Merkel strongly backs financial market tax

My take is a financial transaction tax is a very poor idea, and given political blackmail, it is hard to tell just how committed Merkel would be to such silliness.

ESM Passage Takes 90% of EMU Voting Rights

Bear in mind the ESM does not require 100% passage, but rather 90% of the voting rights. (See EFSM percentage table in Wikipedia).

Germany, France, Italy, and Spain each have veto power. Of that group all but Germany have signed.

Austria, Belgium, and the Netherlands combined could block it. So could a combined Belgium, Netherlands, and Slovakia.

If common sense prevails (theoretically possible but highly unlikely in practice), the ESM will not pass.

German Vote on ESM Fails

The Chicago Tribune reports German parties fail to resolve row over fiscal pact
Germany's government and opposition parties failed on Wednesday to resolve a row holding up parliamentary ratification of both the EU's new fiscal treaty and the euro zone's permanent rescue fund, and will resume talks next week.

The delay is potentially embarrassing for Chancellor Angela Merkel because she has insisted that Germany's European partners sign up to the tougher budget rules enshrined in the compact.

The bailout fund, the European Stability Mechanism (ESM), which may be used to provide help for Spain's ailing banks, is meant to start working from July 1 but cannot do so without the approval of Germany, the euro zone's biggest economy.

Merkel wants parliament to approve the two items at the same time, but needs opposition support for the fiscal treaty. The opposition Social Democrats (SPD) and Greens are pressing for a financial transaction tax as well as more steps to generate European growth and jobs in exchange for their support.

"The (next) meeting on June 21 will take the whole day," said conservative lawmaker Volker Kauder, a close ally of Merkel, noting that the parties had managed to agree on many points but some were still open.

Some in the SPD have previously threatened to delay the bill until the autumn. Countries have until the end of the year to ratify the fiscal compact.
How Politics Works

The universal sad state of affairs in politics is that passing something stupid (such as the ESM), requires the passing of something else that is also stupid (in this case the Financial Transaction Tax).

In the end, stupidity is inevitably compounded.

Financial Transaction Tax is Bad Idea

Please see Why the Tobin Tax is a Bad Idea; Sweden's Experience With the Tax for my reasons on why the tax is a bad idea.

No, it would not directly affect me much, if at all, should it pass in the US. Rather, I am concerned about indirect effects as noted in the above link.


Finland is missing from the above group mentioned by the WSJ as not having ratified the treaty. Finland has signed but not yet ratified the treaty.  Finland May Ask for Collateral for Spanish Banking Bailout.

Finland has about 1.8% share of voting rights, increasing the odds the measure is not passed. For example, a no vote from Belgium, Finland, and the Netherlands could block the treaty.

Mike "Mish" Shedlock
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