Nice ideas, shame about the delay

The steps proposed by Angela Merkel and Nicolas Sarkozy during their meeting on August 16 are useful for tackling the debt crisis – and the crisis could have been avoided if they had been taken months ago.

Published on 17 August 2011 at 14:40
Nicolas Sarkozy and Angela Merkel at the Elysée Palace, August 16.

Perhaps the figures yesterday [August 16] on the stalled German economy helped Berlin understand that the countries in the eurozone are all in the same boat. The meeting in Paris between Nicolas Sarkozy and Angela Merkel has come up with significant new developments that, as is the rule in Europe today, could have been nailed to the masthead a few months earlier, when they would have avoided many problems and plenty of sacrifices.

One hopes, now that they’ve been announced, that they will turn out to be sufficient. Economic governance for the euro area is what has been needed for quite some time. If it had been established, with precise rules and procedures, Italy would have been spared last week's humiliation [the letter in which the ECB outlined to the Italian government the austerity measures it should urgently adopt].

The Paris meeting was a good opportunity to start fixing the errors that the Franco-German duo has committed since the unfortunate summit in Deauville in October 2010, and to fill the gaps and ambiguities left by the European summit of 21 July. Unfortunately, some of the negative consequences of these errors can no longer be avoided; others can. Appointing a chairman of eurozone policy is a timid step towards more comprehensive and more democratically legitimate solutions, which are repugnant to the strongest countries.

This shows the bankruptcy of the "intergovernmental method" (Europe governed mainly by direct contact between governments, and not between central institutions). Europe will not emerge from the current difficulties of the euro without a more effective mechanism that prevents states from violating the stability pact.

The “quasi-automatic" sanctions requested at the time by the European Central Bank (ECB), and again yesterday by the Dutch Prime Minister, would have been the best way to reduce the uncertainty in the financial markets. Yet Nicolas Sarkozy had succeeded in Deauville precisely in convincing Angela Merkel to abandon her “quasi-automatic" sanctions because he feared they would be wielded against France.

Bringing in a "Mr. Euro" and a constitutional "golden rule" for balanced budgets in each member state is unlikely to achieve the same effect. To work towards balanced budgets in the coming years was actually the key rule of the first version of the Stability Pact for the euro. That was suspended by a joint effort of Germany and France in 2003.

If the new mechanism, slightly enhanced, of common economic government manages to function, it will pave the way for issuing common debt bonds for the euro area – the “eurobonds". But not before. And here it’s the Germans who are right, because it is first necessary to curb the risk that certain states may be tempted to indulge in irresponsible behaviour.

The surprise is the appearance of a tax on financial transactions, which is similar to the 'Tobin tax' that, for a time, was dear to alternative movements. It would be extraordinary if they could make it work, because the more countries that don't adopt it (and the United Kingdom has no intention of doing so), the more the ones that do will suffer penalties and see their exchange rates weaken.

That Nicolas Sarkozy and Angela Merkel should have thought it necessary to bring it up exposes the other colossal error committed in Deauville and repeated on July 21.

The "accountability of the private sector" in the debt crisis, as demanded by Germany with the intent to make banks pick up part of the tab (and adopted only by Greece), has – as predicted by the ECB – driven down the weak countries without dimming the smiles of the bankers.

Meanwhile growth is slowing in Germany too. And now we are discovering that the difference between the "two speeds" at which it was feared Europe was travelling is not so great after all. Most impressive, however, is the downward revision of GDP figures: not even Germany has returned to pre-crisis levels.

However, it is better to stay calm: the German economy remains robust, although it is also suffering from the current slowdown in the world. It is quite possible that, as the other European countries hoped, it is not export but domestic demand that will support the German economy in the coming months.

View from Belgium

Van Rompuy for 'Mr Euro'

“Merkel and Sarkozy make Van Rompuy 'the boss of the euro',” [writes an enthusiastic De Standaard](http://destandaard.be/artikel/detail.aspx? artikelid=2T3E3C96&word=rompuy)the day after the meeting between the French president and German chancellor, during which “the two leaders confirmed what has been floating in the air for some time already: Herman van Rompuy, President of the European Council, is the man they think should preside over meetings of leaders of countries in the eurozone”.

The Brussels daily believes that this is a “symbolically important step” and recalls that “the severity of the crisis has made Van Rompuy repeatedly step into this role already – the last occasion being on 21 July. For now, this position could be formalised as a kind of 'government of the euro’”. De Standaard makes it clear that Sarkozy and Merkel expect “Mr Euro” to preside over a euro summit twice a year. In the event of an “acute crisis”, though, additional meetings could be convened.

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