Boston artist Steve Mills - realistic painting

Wednesday, June 16, 2010

Merkel-Sarkozy unity show

BBC BLOGS - Gavin Hewitt's Europe

Gavin Hewitt | 09:52 UK time, Tuesday, 15 June 2010

German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin, 14 Jun 10The German chancellor and the French president did what was demanded of them. They displayed unity. They said the words. "More than ever, Germany and France are determined to talk with one voice," said President Sarkozy, "to adopt common policies, to give Europe the means to meet its legitimate ambitions".
They often meet together just before a summit. What France and Germany agree on before the summits is what usually happens. But not necessarily this time. Courtship rituals do not disguise the fact that there are deep differences between France and Germany over how to address the crisis in the eurozone.
The key for Germany remains discipline - those who use the single currency must live by the rules when it comes to tax and spending. The German chancellor wants a "strengthening of the Stability and Growth Pact" that governs the eurozone. In future those countries that live beyond their means risk losing their voting rights. It seems an odd sanction and one that a country in difficulty might gladly embrace, rather than take tougher decisions at home.
The French view is for a giant leap forward towards integration for the 16 countries that use the eurozone. They favour "economic government" with a powerful secretariat, a treasury that would co-ordinate national budgets and tax and spending. In the French dream, monetary union would morph into financial union.
For the moment the German view seems to have the upper hand. Angela Merkel wants "economic governance" for all 27 EU member states. She is wary of a two-tier Europe in which the eurozone has its own secretariat. So, for the time being, there will be no new institutions.
The German chancellor does, however, back pre-approval for national budgets. To bring this about she envisages treaty changes. After the bruising experience of getting approval for the Lisbon Treaty there is little appetite to enter the ring again. The President of the Commission, Jose Manuel Barroso, opposes treaty changes because he fears that countries like the UK would see it as an opportunity to reopen negotiations on clauses they don't like.
But the idea of a treaty change could pose a real challenge to David Cameron. If the result of the change was that power moved to Brussels he would have to put it to the British people in a referendum. That is a commitment which may soon be backed by legislation.
In all of this there is much that remains unclear. There is a fog around the words "economic governance". As regards the relationship between Angela Merkel and Nicolas Sarkozy, they will have to do far more to convince an anxious Europe that they see eye-to-eye. Only this week the German magazine Der Spiegel said that "they can hardly stand each other" and that she calls him the "little Napoleon". The French paper Le Point concludes "nothing is working anymore in the German-French relationship".
Meanwhile, as Europe's leaders circle each other, there are clouds on the horizon. Many people expect a Greek default. Despite the optimistic words coming out of the Greek finance ministry it is hard to find an official in Brussels who does not think that sooner or later Greek debt will have to be restructured. "Restructure" is the word that dare not mention its name, but it may still happen. And then the question is whether Greek debt should be restructured inside or outside the eurozone.
Then there is Spain. A Spanish official said yesterday (Monday) that some foreign banks were refusing to lend to a group of Spanish banks. There was a liquidity freeze on some Spanish banks in the interbank market. Yesterday - although I'm not sure it eased investors' fears - the German chancellor said Spain could make use of the 750bn-euro (£623bn; $917bn) rescue mechanism. In the twitchy world of eurozone rumours a lot of attention is being given to Spain.
The question is this: if the rescue mechanism is drawn upon will the sums be enough? It is inconceivable that Germany would be willing again to underwrite a further deal.
And then there are the austerity packages that are gradually dropping on European doormats like unwelcome bills. Will the people accept la rigueur? In Germany 87% of those polled thought their measures were unfair. The Italians and the Spanish are all preparing to protest further. Eventually the question could become political: "Is all this (austerity, bail-outs) the price of keeping the eurozone together?"

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