Germany says it will only agree new measures to stabilise the euro zone if they come as part of a comprehensive package to solve the bloc's debt crisis that the European Union wants to agree in March.
Europe's paymaster is being cast as a bully for rejecting proposals such as broadening the EFSF rescue fund set up after the bailout of Greece in May to protect fiscally vulnerable euro zone countries and defend the single currency.
Yet the crucial nuance lies in Berlin's insistence on no new measures "now" and the need for a quid pro quo.
It is open to new measures such as boosting the effective lending capacity of the fund as long as these are agreed within a comprehensive package ensuring greater economic coordination and improved competitiveness and budget consolidation.
Below are measures Berlin will likely want in the package:
GREATER ECONOMIC COORDINATION
Berlin wants closer economic coordination within the EU to improve competitiveness to prevent imbalances arising.
Germany has held down wages and raised its retirement age in order to keep the economy in shape and the budget in check. It now wants other EU nations to do the same.
Germans feel it is unfair for countries that have done their homework to have to bail out others that have been more profligate.
In a recent interview with Stern magazine, Chancellor Angela Merkel said the euro zone should improve its coordination of taxes, labour laws and wage developments in the public sector.
It is questionable to what extent the EU will be able to agree on such far-reaching and sensitive measures by March.
The EU took the first step towards more policy coordination earlier when its executive set out top priorities for EU governments to be included in 2012 budgets. [ID:nLDE70B2DC]
DEFICIT REDUCTION
Berlin wants greater commitment to budget consolidation to avoid another crisis that might endanger the euro.
Ideally, Berlin would like its euro zone partners to imitate the German "debt brake" law that came into effect this year, forcing the country to cut its structural budget deficit to 0.35 percent of gross domestic product by 2016. [ID:nLDE7091TU]
BOOST RESCUE FUND
German Finance Minister Wolfgang Schaeuble has acknowledged the necessity of boosting the effective lending capacity of the anti-crisis European Financial Stability Facility (EFSF) but has said he is opposed to raising the headline figure.
A complex system of loan guarantees means the rescue fund's effective capacity is much lower than its 440 billion euro headline figure. Experts put the amount available at 250 to 260 billion euros.
Still up for debate is how the rescue fund would be boosted. Germany has said it would consider the option of getting euro zone countries who do not have top-notch AAA credit ratings to help boost the EFSF's capacity with more cash. [ID:nLDE70K0P8]
Schaeuble has said Brussels should "prevent the impression it is only putting pressure on the triple A-rated countries".
RESTRUCTURING GREEK DEBT
There are divisions in Berlin over whether to consider a restructuring of Greece's debt, with the Finance Ministry seeming more open to this option — if agreed within a comprehensive, long-term package of measures — than the chancellery.
Sources told Reuters last week that officials in the ministry were working on contingency plans to handle the fallout in case Greece needs to restructure. [ID:nLDE70I158]
A government spokesman however said there was no truth to reports the cabinet was preparing a restructuring of Greek debt, and sources say the chancellery sees no need for it.
German officials last week fended off talk Europe will need to help Athens with debt repayments via a buyback with European funding which could face opposition from national parliaments.
TOUGHER, BROADER STRESS TESTS
EU finance ministers agreed last week to back tougher stress tests for the region's banks to restore confidence in the sector, but failed to agree on how strict they should be.
Berlin has said it wants more banks to be tested, and liquidity levels to be included in the tests.
PUNITIVE INTEREST RATE
Germany is against lowering the punitive interest rate the EFSF charges states for its loans, a step other euro zone members believe is necessary to allow struggling economies in the bloc to reduce their debt mountains.
If the margin were to be lowered for the EFSF, it would most likely also fall for loans already agreed on for Ireland, as well as for Greece.
