Angela Merkel’s domestic imperative

The Cyprus situation has demonstrated that until the elections in the autumn, Angela Merkel’s primary focus is on a domestic audience. She clearly wanted to show that Germany is now prepared to take a far tougher line. As Open Europe notes the need for this is fast becoming the consensus view in Germany.

So, the question now for the Eurozone is will we see any more crunch moments this side of the German election? If we do, then I think we could see the end of the Euro. The Cypriot parliament’s rejection of the initial bailout deal, at the insistence of the voters, shows that there is a limit to the pain that the weaker Eurozone economies are prepared to take for economic and monetary union.

One other consequence of the last few days is that it is clear that full banking union is now off the table: the EU is not going to directly recapitalise every Eurozone bank that gets into trouble.