Participants said there were tense exchanges at a euro zone ministerial meeting in Cyprus in mid-September when [German Finance Minister Wolfgang] Schaeuble told his peers Berlin could not take another bailout for Spain to parliament so soon after lawmakers approved up to 100 billion euros ($129 billion) to help Spanish banks in July.
So much for Mario Draghi’s “big bazooka.” The ECB is still at the mercy of German politics and all those wacky taxpayers who don’t want their hard earned money given away to foreigners. Of course, France and Italy are pressuring Germany to quickly approve another bailout and open the ECB’s spigots. And the likelihood is that, sooner or later, the Germans will flinch, as they have done at every stage of this prolonged and exhausting crisis.But Chancellor Merkel can’t flinch too quickly, or German voters will think she has gone soft. The German government has the difficult assignment of looking tough enough to reassure voters while looking like enough of a patsy to reassure financial markets that, in the end, the ECB will do what it takes.It’s a crazy way to run a major economy, but that is where the Europeans have ended up. Until people start losing faith in the ECB or in Germany (and that is something that could happen if things don’t turn around or if, for example, France joins Italy and Spain in the global doghouse), a becalmed European economy will quietly weaken and whimper rather than crash with a spectacular bang.