Germany announced May 9 that it will delay passage of legislation on the European Union bailout fund until after the French parliamentary elections next month, the Dow Jones Newswire reports.
Germany still hopes to pass the bailout package and the fiscal pact by July to prevent delays in launching the bailout fund that month.
The German maneuver comes after France elected anti-austerity Socialist Francois Hollande to the presidency and Greece voted for anti-austerity parties. Hollande is demanding that the fiscal past include a “growth pact,” hoping to take the focus of the treaty from austerity to increased government spending to boost growth and jobs.
Unfortunately for German Chancellor Angela Merkel, Hollande has received support from her opposition parties in Germany. Merkel needs support from those opposition parties to get the two-thirds majority required to pass the fiscal pact in the German parliament. So far, Merkel is refusing to negotiate on the fiscal pact.
“We in the Eurozone must stick to the rules and agreements we have made,” Merkel told reporters at a Berlin news conference, according to Dow Jones.
The goal of the delay is to give the new French government and German opposition parties time for informal talks to come to agreement on the fiscal pact. Merkel can do little else to negotiate with the French until their parliamentary elections are over.
“I hope very much that once the smoke of the election battle has cleared, including the parliamentary election, that we can come together and move Europe forward,” said Rainer Bruederle, chief whip of the pro-business Free Democrats, Merkel’s junior coalition partner.
With the deadline for approval fast approaching, Merkel needs to get the legislature to pass the fiscal pact in order for her to go to Brussels and negotiate the details of the bailout fund. Delaying the vote in Germany threatens the launch of the European Stability Mechanism (ESM), the Eurozone’s permanent bailout fund.
Merkel’s spokesperson, however, told a separate news conference that she would negotiate with opposition parties after her return from a NATO summit in Chicago on May 20, hoping to push the legislation forward.
The Eurozone is in a tight spot. Greece has been without a government since its recent elections and seems likely to exit the Eurozone or be forced out. Spain’s 10-year borrowing rate jumped 6.06 percent from 5.70 percent due to worries that it could be the next country to require financial assistance. Italy has also seen troubles, as the results of recent local elections will make it harder for Prime Minister Mario Monti to push through unpopular reforms.
Reuters reports that the Euro has slid against the dollar to a three-and-a-half month low on fears that the debt crisis may get worse based on the election results in Greece and Spain’s worsening economic situation.
“This is a continuation of a trend that has prevailed over the past week, with Greek political disarray likely to be a drag on the euro for the foreseeable future,” said Joe Manimbo, senior market analyst at Western Union Business Solutions.
The coming weeks may clear up some political uncertainty, but Europe’s underlying problems of high debt, high unemployment, and sluggish economic growth will take more time to be resolved.
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