Slow motion coalition

By Mike Peacock
October 21, 2013

Angela Merkel’s CDU and the centre-left SPD will begin formal coalition talks in Germany this week after a meeting of 230 senior SPD members gave the go-ahead on Sunday.

To win the vote, the SPD leadership pledged to secure 10 demands it called “non-negotiable”, including a minimum wage of 8.50 euros per hour, equal pay for men and women, greater investment in infrastructure and education, and a common strategy to boost euro zone growth.

That means thrashing out a policy slate with Merkel’s party is likely to take some time so the betting is an administration won’t be in place until late November at the earliest. SPD chairman Sigmar Gabriel said the aim was to have a functioning government by Christmas.

SPD sources say the centre-left also wants six of the 15 cabinet posts though there has been no mention of targeting Wolfgang Schaeuble’s finance ministry.

So it will be some while until the EU’s dominant power will be in a position to push forward new policies aimed at securing the euro zone’s future. To prove that point, an EU leaders’ summit on Thursday and Friday is unlikely to break new ground although of course all the hot topics such as banking union will be discussed.

A December EU summit is supposed to sign off on a resolution mechanism for failing banks. Gabriel’s timetable suggests that deadline could be under threat.

There was some jockeying for position over banking union at the weekend. A letter written by European Central Bank chief Mario Draghi to Brussels over two months ago came to light. In it, he said banks that are still viable but need state aid to boost their capital base should be allowed to receive help without inflicting losses on their junior bondholders or there could be investor flight out of the European banking market. Berlin may not be keen.

Der Spiegel, meanwhile, reported that Thomas Weiser – the man who chairs the group of experts behind the euro zone finance ministers’ Eurogroup caucus — has proposed an earlier start of ‘bail-in’ arrangements which force bondholders to share losses in a bank failure, in a bid to assuage German concerns. He suggested a 2016 start, rather than 2018.

Slovenia appears to be approaching the moment of truth when it has to decide whether to seek a bailout to put right its banks which are beset by 8 billion euros of bad loans – almost a quarter of the entire economy.

The head of its central bank has said outside help may be needed if the country’s borrowing costs don’t fall but the prime minister says no. Jeroen Djisselbloem, the Dutch finance minister who chairs the Eurogroup, visits Ljubljana today.

Djisselbloem’s predecessor as Eurogroup chief, veteran Luxembourg prime minister Jean-Claude Juncker, lost seats at Sunday elections, his party suffering its worst result since 1999. But it will remain by far the largest in parliament.

Cyprus’s parliamentary finance committee opens discussions with the finance minister and central bank governor on a harsh 2014 budget, the first since a bailout saved the island from financial meltdown in March. Authorities have slashed spending and say no new taxes will be introduced in what is expected to be a tough year.

Italian Prime Minister Enrico Letta will meet with Greek Prime Minister Antonis Samaras in Rome, with immigration likely to top the agenda after recent boat sinking catastrophes. Portugal’s economy minister is in London to try and lure investors.

It wasn’t long ago that we wrote about the dearth of women in the central banking world – there is none on the ECB’s 23-man Governing Council or among the nine Bank of England rate setters. The only examples of female central bank chiefs were in South Africa and Malaysia.

Now Russia has added Elvira Nabiullina to the list and Janet Yellen will soon take the helm in the biggest monetary policy job of all. And on Sunday, Israel appointed a woman – Karnit Flug – to replace Stanley Fischer. She was his deputy.

Surely the next posts to come up at the European Central Bank and Bank of England should further redress the balance.

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