Saturday 16 December 2017

Merkel blinks as Berlusconi's spectre looms

AFTER 20 summits, Germany finally seems to have blinked. German Chancellor Angela Merkel's reluctant agreement to allow the ESM to recapitalise banks directly represents a clear victory for the eurozone periphery, including Ireland.

The omens were not good in the run-up to the summit. Even by German standards, Mrs Merkel's refusal to countenance eurobonds "for as long as I live" was unusually blunt.

Aided and abetted by the Bundesbank, the German central bank, Mrs Merkel had also dug in her heels against using the EU bailout fund to purchase Spanish and Italian bonds in an effort to reduce the crippling yields these countries are now paying.

The other leaders of the eurozone "Big Four" -- Francois Hollande of France, Italy's Mario Monti and Spain's Mario Rajoy -- seemed utterly incapable of swaying Mrs Merkel.

So what happened? Why did Mrs Merkel agree, if only in principle, to allow the ESM to recapitalise banks directly?

With the very existence of the single currency being called into question, the apparent German U-turn was almost certainly largely due to someone who wasn't even at the summit -- former Italian prime minister Silvio Berlusconi.

When he was ejected from office last November in what amounted to a eurozone coup against a democratically elected government, it seemed as if Mr Berlusconi's political career was finally over. Eight months later, things look very different.

Mr Monti, the unelected technocrat who succeeded Mr Berlusconi, has seen his early popularity rapidly disappear as he implements the tough austerity measures demanded by the EU and the ECB.

Meanwhile, freed from the constraints of office, Mr Berlusconi, who remains the leader of the largest party in Italy's parliament, has been staking out popular positions in advance of next year's Italian general election.

In a recent speech, he raised the possibility of either Italy or Germany leaving the euro. Is it fanciful to suspect that Mr Berlusconi harbours ambitions of becoming Italian prime minister for the fourth time?

If he does, stand by for fireworks. Mr Berlusconi, who once famously kept the German leader waiting on the red carpet while he took a call on his mobile phone, owes Mrs Merkel nothing.

Was it the truly appalling prospect of Mr Berlusconi's return that finally bent the Kanzlerin's iron will?

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