Mario Lopez writes from Madrid: Chancellor  Angela Merkel is more popular in Germany at the moment than she’s been for years. Why is this? She is finally seen to be defending her country’s interests in the Eurozone. Every time she says Nein to a new bailout for Greece or Spain her ratings go up.

Merkel’s party, the Christian Democratic Union and its sister party in Bavaria, the Christian Social Union, are 11 points ahead of the Social Democrats in the latest poll. This is a strength and a weakness for the Iron Chancellor. It puts her in a politically strong position when she enters the negotiating chamber. On the other hand, her room for manoeuvre is limited. The latest spat was with Mario Monti, the silver haired, smooth talking Italian premier. Monti wanted a licence for the European Stability Mechanism so that it could buy Greek, Spanish and Italian bonds in order to keep interest rates down. Not surprisingly, these countries have to pay a premium to borrow the funds they urgently need to be able to meet debt repayments and pay their public workers.

Mario Draghi, another Italian and head of the European Central Bank, pleaded for special measures to meet special needs. The German Bundesbank is resolutely against bending the rules just to help out weaker states. The German argument is that throwing more money at their problems will not solve them. Fiscal discipline has to be enforced. This involves cutting budgets, privatisation and reducing the state share of the GDP.

Meanwhile, things are hotting up here in Spain. Catalunya, the second richest region in terms of GDP per capita, is demanding, yes demanding, a transfer of over 5 billion euros. Without it, the region will not be able to cope with the maturing debt of 5.7 billion euros by the end of the year. The Catalans are asking for the money because they think it is theirs by right. It is tax which was taken by Madrid from its citizens. When they get it, they will not say thank you either. This will increase their debt which already stands at 42 billion euros. And another thing, Barcelona is adamant that it will not accept any political conditions for the loan. It will also not make any further cuts to meet the deficit targets imposed by Madrid. Things are getting rough.

The problem for Mariano Rajoy, the Prime Minister, is that the piggy bank to bail out the 17 regions only has 18 billion euros in it. Catalunya is the third beggar to want some of it. So half the fund is already gone. What happens when the other 14 regions demand the same treatment?

The European Council President Herman van Rompuy made clear that Madrid’s problems with the regions was not an EU problem. The message was clear. Sort it out or you will not get another bailout. Rajoy is caught in a vicious circle. He has to act tough to impress Brussels and Berlin that he can turn Spanish finances round. However, some regions are refusing to implement cuts proposed by Madrid. Why should a socialist controlled regional government make life easy for a conservative Prime Minister? Being Bolshie is the best policy. It may bring concessions.

Merkel is due in Madrid for a Spanish-German summit on September 6. Expect sparks to fly as the Chancellor lays down the law.

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