Berlin Rattled by Italian and Greek Foot Dragging

Spiegel
September 6, 2011

Chancellor Angela Merkel is having trouble finding a majority for a crucial vote this month on expanding the euro backstop fund. A key cause of skepticism can be found in Rome. Patience is wearing thin in Europe as Italy stumbles toward a half-hearted austerity package.

It was the kind of news that Chancellor Angela Merkel could have done without. Last week, an inspection team made up of representatives from the European Union, the International Monetary Fund and the European Central Bank left Athens early out of frustration. Greece, they found, isn't doing enough to implement the massive austerity package passed in the summer. Even simple steps haven't been taken, the group, known as the "troika," complained.

"If something isn't done immediately then no option will be excluded," the Süddeutsche Zeitung on Tuesday quoted an unnamed euro-zone source as saying. An anonymous European Commission source told the paper that "absent a strong troika report, we will see a national bankruptcy at the end of the month."

The timing for Merkel's government couldn't be worse. On Monday evening, her governing coalition held a test vote ahead of a crucial parliamentary decision later this month on extending the powers of the euro backstop fund , the European Financial Security Facility (EFSF). The result? Her majority is fragile indeed. Fourteen from her camp -- a coalition of her conservatives with the business-friendly Free Democrats -- voted against the reform and seven abstained. Her parliamentary majority is a mere 19 votes.

The vote, of course, is by no means an indication that the EFSF reforms won't be approved in the federal parliament, the Bundestag. The center-left opposition Social Democrats, after all, have indicated that they will likely support the law.

But it does show just how nervous many in Merkel's party have become about the worsening condition of the euro zone . Athens has fallen so far behind in its austerity measures that murmurings that Greece should exit the euro zone are no longer the exclusive domain of the political margins of Merkel's government coalition. During Monday consultations with her party, the Christian Democrats, Merkel said that the situation was "extremely fragile." At the same time, she also warned against Greece leaving the common currency, stating she feared it could trigger a domino effect "that would be extremely dangerous for our currency system."

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