Merkel Supports Euro, Again

Angela Merkel came back from an extended summer vacation and immediately said she supports efforts by the European Central Bank to buy the bonds of troubled sovereigns. In theory, this will bring down yields and make borrowing for nations like Spain financially tenable. The markets should be cheered by the news, if Merkel sticks to her declaration, which has been a problem in the past. Much of what she says about Germany's role in the future of Europe is conditional.

What may have changed Merkel's view from her earlier opposition is that ECB chief Mario Draghi said he expects nations who want to have their bonds bought must adhere to rules set for them to balance their budgets. Most troubled countries already have turned away from their austerity obligations. Greece has asked for more time to cut expenses and perhaps to allow its economy to recover. There is absolutely no reason to think that recovery is possible because the nation is in such deep trouble and it has not a single euro to provide stimulus. Spain has asked for another year to settle its austerity plans, and perhaps shore up its largest banks. But, with unemployment at 25% and bank balance sheets deteriorating, Spain is only stalling.

Merkel can appear to be generous. The strings attached to bond purchases by the ECB are thick. Draghi played the hero when he said he could reverse the rising bond yields of countries desperate to borrow at sustainable rates. Germany's Bundesbank registered disapproval in June. Merkel appears to have turned away from the Bundesbank's resistance. But the turn means very little. ECB bond-buyer actions are so conditional now that Germany can count on the fact that they many never happen.

Douglas A. McIntyre

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