The view from Berlin: concern for AAA rating

Berlin Tegel airport, 9am

As I watched George Papandreou speed into Chancellor Merkel’s official residence in Berlin I was left feeling that this is the moment the euro crisis hit Germany.

Not in the sense that Germany has any fear of heading in the direction of Greece – the Eurozone’s two poles might as well be on different planets, but more that the fundamental decision on Germany’s role in the euro is coming, and it spells political fragility for Chancellor Merkel.

First, one measure of the gulf between PIG and paymaster: yesterday so buoyant are tax revenues in Germany that the treasury in Berlin was able to cancel 16bn euros of government debt auctions from the forthcoming quarter, at the drop of a hat. On the very same day, Greek politicians voted through gritted teeth to tax every Greek household hundreds of euros at pain of electricity cut offs from next month. The Pasok MPs were called “traitors” by the ordinary Greeks we met a few days ago, and the move will provoke massive protests in the next fortnight. The good news: Greece should now hit the IMF/ EU (and let’s face it, German) target deficit for 2011 of, you guessed it 16bn euros. The same figure that could have been raised at interest rates below 2 per cent but turned down by Germany on the same day.

It was a coincidence. But I think it is rather telling. The Greece problem is eminently solvable through transfers. As I’ve said, Euroland as a nation state has a perfectly plausible set of fiscal numbers, better than the US and UK. What the euro crisis is about though is internal Eurozone diplomacy by other means.

But there is concern, as I showed in my film from Munich:

And overnight there were signs of more splits with Brussels, Frankfurt and within Germany’s coalition, as concern mounted for the unthinkable: that these supposed  multi trillion bailouts could lose Germany its gold standard credit rating.

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