Bloomberg News

Schaeuble Urges Debt Curbs to Soothe Market ‘Anxiety’

September 06, 2011

(Updates with comments from CDU lawmaker in fifth paragraph, economist in 10th.)

Sept. 6 (Bloomberg) -- German Finance Minister Wolfgang Schaeuble called on euro-area governments to fully implement curbs on debt, saying that only fiscal “solidity” will help tame financial-market turmoil.

Schaeuble’s comments to lawmakers in Berlin today seek to raise the pressure on euro-area states to follow Germany and clamp down on debt to tackle the core cause of the sovereign crisis that is rocking markets worldwide. Financial markets are in “a state of anxiety,” requiring “a new mentality” rather than short-term stimulus, he said.

“Markets are not the problem, excesses are,” Schaeuble said in parliament’s first session after the summer recess, as he opened a debate on the 2012 budget. The constitutionally mandated debt ceiling enacted by Germany and now being emulated by France and Spain is “of fundamental importance,” he said. Only “financial-policy solidity will win the confidence of markets.”

Schaeuble sought to assuage lawmaker concerns that the Greek government is reneging on the terms of its rescue, saying that Greece won’t get its next bailout installment unless it meets austerity goals set under the aid package. Chancellor Angela Merkel took the same message to a meeting of coalition lawmakers in Berlin last night, two party officials said on condition of anonymity because the talks were held in private.

‘No Longer Willing’

“The basis for all these programs is that we provide aid under certain conditions,” Klaus-Peter Flosbach, CDU financial- policy spokesman in parliament, said in an interview. “There can be a situation in which we are no longer willing to help when the conditions aren’t met.”

Merkel’s coalition has to appease voter anger at government moves to prevent a euro-region breakup by putting more taxpayers’ money on the line. Merkel’s CDU suffered its worst- ever result in an election in her home state on Sept. 4.

The chancellor is due to address the lower house tomorrow after the constitutional court hands down a ruling on a legal challenge to Germany’s participation in last year’s 110 billion- euro ($156 billion) Greek bailout and the 750 billion-euro European rescue fund. The lower house will then hold a first reading on Sept. 8 of a bill to overhaul the European Financial Stability Facility, including granting it sovereign bond-buying powers and raising Germany’s share of loan guarantees to 211 billion euros from 123 billion euros.

EFSF Abstentions

Twelve lawmakers voted against the bill and seven abstained during a closed-door test run before a plenary-session ballot on Sept. 29, one of the officials said. Six lawmakers from Merkel’s Free Democratic coalition partner withheld their support at a separate caucus meeting, Deutschlandfunk radio reported.

Merkel needs 311 ballots in favor of the changes from the 620 lawmakers sitting in parliament’s lower chamber, with her CDU/CSU and FDP bloc comprising 330 lawmakers. The opposition Social Democrats and the Greens have indicated they’ll support the bill, ensuring it will pass.

“Expect Merkel to work very hard to turn some of the skeptics around in the next few weeks,” Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co. in London, said in a note today. “If need be, she may even tie the Euro vote to a vote of confidence so that dissidents within her coalition would risk bringing down the government,” he said. “Amid all the noise, a potential loss of nerves is perhaps the ultimate tail risk we need to watch in the euro debt crisis.”

Schaeuble said that spending cuts are “unavoidable” for the euro area’s indebted states and joint European debt issuance, or euro bonds, would trigger a loss of confidence in the currency.

‘Mistaken Sense’

“Introducing euro bonds without institutional changes would show a mistaken sense of solidarity at best,” he said. Until the European Union is organized more like a single country, “we cannot and must not pool the interest-rate risk.”

German aims to be “the anchor of stability and engine of growth in the euro area” are borne out by increasing domestic investment and hence economic growth. The German economy, Europe’s biggest, will grow about 3 percent this year even after a weak second quarter, he said. “When we take this path, we win the best way to sustainable growth and stability.”

“We took a lot of criticism last year” for resisting pressure from other governments to stimulate the German economy, Schaeuble said. “Now it turns out we were right.”

--Editors: Alan Crawford, James Hertling

To contact the reporters on this story: Rainer Buergin in Berlin at; Tony Czuczka in Berlin at

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.

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