EUROPEAN DIARY:THIS IS the way we live now. Angela Merkel and Nicolas Sarkozy take lunch together in Paris, the rest of Europe looks on for clues as to where they will lead us next. It has happened before in the debt crisis. It will happen again.
In the ambitious new world foreseen by Merkel and Sarkozy, all euro zone leaders would meet once a month for a summit until the debacle is finally resolved. That’s a great many summits, and a great many pre-meeting chats in Paris, Berlin or wherever else the chancellor and the president choose to meet.
As this week’s summit approaches, the German and French leaders have erased some of the differences between them and cleared the way for a joint proposal for a tougher governance system in the euro zone. This will be tabled tomorrow, the day before all 27 EU leaders gather in Brussels.
Time is running short, but at least Merkel and Sarkozy are nearing agreement. Only days ago they set out contrasting visions in Berlin and Toulon. Thus the Paris meeting marked a breakthrough of sorts. Still, the fact that they could not immediately send a plan to European Council president Herman Van Rompuy suggests work remains to be done.
The latest “Merkozy” diktat unwinds the fundamental principles of the deal they struck last year at Deauville, a fateful pact which was one of the key drivers of Ireland’s slide into the bailout zone only weeks later.
Specifically, Merkel and Sarkozy have agreed that sanctions against persistent rule-breakers should be more automatic. Even more importantly, they have watered down their call for compulsory private sector involvement in future rescues. In the run-up to Ireland’s bailout, Dublin found it impossible to regain confidence once that demand was made. It played straight into the hands of the doubters.
The sidelining of this question means EU leaders will be able to bring forward the introduction of the European Stability Mechanism permanent bailout fund by one year to mid-2012. With the effort to expand the EFSF temporary fund falling short, Europe is now likely to take the benefit of a new €500 billion credit line within months. Amid worry that the existing “firewall” is far too small, this marks a step forward.
Still, the latest Merkel-Sarkozy démarche raises a host of questions about the overbearing dominance of the two biggest countries in the euro zone. At the very same time as the famous duo were dining in the Élysée Palace, ministers for Europe from the 27 member states were at lunch in Brussels with Van Rompuy making preparations for the summit. Although there may have been a touch of ambivalence to the ministers’ meeting, the whole sorry saga in the euro zone suggests progress is not possible without Germany and France working in tandem.
There may be plenty of talk these days about the “triple-As” setting the terms for everyone but that goes only so far. It is Merkel ultimately who sets the tone, pace and scale of the response to the crisis and her alliance with Sarkozy, which leaves everyone else with little choice but to follow.
True, their proposals may be reheats from papers churned out by the policy factory in the European Commission. But, without the imprimatur of Germany and France, such ideas are doomed to oblivion.
So what else have Merkel and Sarkozy agreed and where does the compact fit into the new grand bargain? The answer is that it is central. The basic plan assumes euro zone governments will make a binding pledge to reinforce their system of economic governance in return for a new manoeuvre by the European Central Bank to step up its interventions in debt markets.
Merkel and Sarkozy insist that fiscal rectitude cannot be achieved without changing the EU treaties. Quite how this is achieved is still subject to conjecture – and entrenched argument – yet it is clear by now that their European counterparts are going to have to embark down that very path.
They would much rather avoid it – and referendums may well prove inevitable in Ireland and elsewhere. But Merkel is not for turning and Sarkozy is fully on board.
For his part, Sarkozy has conceded the principle that the European Court of Justice would be given new powers to assess whether national budget rules are in compliance with governments’ European obligations. As recently as last Thursday, he was angling for an oversight system run by governments outside the ambit of EU law. The quid pro quo from Merkel is that the court will not have powers to scrap draft budgets.
There will have to be more of these fudges before all 27 leaders can sign a deal on Friday to calm the crisis. It is a measure of the intensity of the turmoil that no one suggests a definitive solution is to hand. That still seems very far away.
