Report European integration

Paris and Berlin play it for Brussels

The “pact for competitiveness” is not so much a Franco-German takeover of the EU but a step towards a federal Europe, argues Times columnist Anatole Kaletsky. Which is why its outline for an ‘economic government’ in the eurozone won’t ease the effects of the financial crisis.

Published on 9 February 2011 at 14:53

The Sarkozy/Merkel pact for competitiveness aims to harmonise national economic and social policy for the eurozone countries: corporate taxes, pension systems, wage bargaining, educational qualifications, public debt limits and the management regimes for troubled banks. Although essentially a plan for a federal Europe, British PM David Cameron remains “relaxed about this enormous step in the EU’s journey”, writes the Times columnist. “The hope in Whitehall is that this centralisation programme will be quietly abandoned, or even reversed, once the crisis is over; but the likelihood is the opposite.”

Worse, however, is that this proposed harmonisation of tax, labour and pension policies will do little to help Europe out of its economic crisis. “On the contrary, Ireland would suffer outflows of capital and employment if forced to harmonise its tax rates up to German and French levels. Centralising wage bargaining across Europe, far from allowing poor countries to become more competitive by taking advantage of their cheap labour, would create a mechanism to protect high German and French wages and social charges.”

Britain is apparently untroubled by such developments because Germany insists that the EU harmonisation should be monitored by national leaders at summits, rather than by EU commissioners in Brussels. However, “The Commission provides the only mechanism for implementing intergovernmental decisions and everything in EU history suggests that it will soon gain complete control. Moreover, the other members of the eurozone are all determined not to be governed by Germany, or even by a Franco-German directorate. They will ensure that the main responsibilities for “economic government” move rapidly to the Commission, once Germany signs up to irrevocable guarantees for the euro’s financial stability and thereby loses its veto power.”

As this momentum towards a Federal Europe becomes ineluctable, non-euro countries like Britain “will then have to face up to the reality of a multi-speed Europe, with a fully integrated federal core, and a much looser coalition of trading partners on the outside. This vision of a looser Europe has much to commend it, but is one that successive British governments have struggled for decades to avoid. It is now a fact of life.” Read full article at The Times (paywall) or in Presseurop's nine other languages...

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From Belgium

Angela Merkel is right on the money

"Nobody does more for us than Angela Merkel," says Bart Sturtewagen. The De Standaardcolumnist fails to grasp why the German chancellor is coming under so much fire for her proposed competitiveness pact. “It’s thanks to Germany that the Belgian economy is recovering at the moment," he argues, highlighting that without “Merkel’s firm stance” the financial markets would have unleashed further speculation against the euro. "Interest rates are falling not just in Germany but also in the weak countries of the eurozone, such as Belgium, who must pay additional interest – what’s called the spread." Bart Sturtewagen does not partake in criticisms from some economists who believe "Merkel's Germany” to be “hard and selfish”: "German prosperity should be shared if it is to be sustainable, but this will only happen if the countries of the eurozone show that they are willing to do their bit." "Without policy convergence,” the reporter concludes,"this project will not survive."

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