Time for politics after the storm

Angela Merkel and Mario Monti have both assured us that we need "more Europe", and that hope in the future can only be restored in a context of greater political harmony. If the austerity that has struck our shrinking economies is excessive, and I must insist on this point, it is precisely because of the mutual mistrust that reigns between our countries. And this mistrust could be overcome if we were more united.

It remains to be seen if the pace at which the Chancellor wishes to embark on this course is not too slow. Today Berlin is speaking the right language, but has remained relatively inactive, as leading German philosopher Jürgen Habermas points out. Perhaps we will have to wait another 18 months for the German elections in the autumn of 2013 before we see definitive answers to outstanding questions.

The reassuring entente that was evident in the behaviour of both government leaders on 13 March [Mario Monti and Angela Merkel] is a step in the right direction, but at the same time there is virtually no question of Europe in the presidential campaign in France, where Nicolas Sarkozy has even sought to score points in the polls by attacking certain European policies.

Fiscal compact not inflexible

The financial crisis has shown that public authorities play an essential role in calming the markets, so that their energy can be channeled in compliance with regulations. However, it has also shown that certain public authorities in eurozone countries do not carry sufficient weight. In Paris, this fact appears to have been overlooked by both the current president and rival socialist candidate François Hollande.

Fortunately, a number of other factors appear to be evolving. The compromise obtained on 13 March by Spain, which has shown a readiness to fight for more elbow room on deficit reduction, will make the fiscal compact easier to endure. At the same time, close examination of the technical aspects of this agreement reveals that the new rules on public accounting are not as inflexible as they initially seemed.

As well as being a testament to the esteem in which our Prime Minister is held, the curious announcement of Mario Monti’s candidature for the presidency of Eurogroup is the collateral effect of an ongoing game of musical chairs. Perhaps the Bundesbank’s anxieties will be appeased by the arrival of Luxembourg’s Yves Mersch (a German-style hawk) on the executive board of the European Central Bank, where he will take over a seat that has until recently be occupied by a Spaniard.

If that is the case, the quest to find a replacement for Luxembourg’s Jean-Claude Juncker, who has been maintained in his current role as Eurogroup President amid doubts over who should succeed him, will become all the more urgent.

Progress is still tentative

Although the reaction of the political class in Brussels, like the reaction in Paris and Berlin, was slow in coming and largely confused, the current calm spell on financial markets will nonetheless facilitate certain changes.

Differences in the level of competitiveness between countries, which have undermined the cohesion of the eurozone, could be on the wane: not as a result of a government initiative, but in the wake of action by German trade unions, which are in the process of demanding significant pay increases. If they succeed, Germany’s competitive advantage could be reduced.

Having said that, progress is still tentative and there is always the possibility that it will be hampered by further obstacles. If they go ahead next month, the likelihood is that early general elections in Greece will undermine the quality of the country’s government, where more austerity measures are on the cards for 2013. At the same time, the need to finalise plans for a second Portuguese bailout will probably reach a critical stage this summer.

Italy’s fate will remain in the balance until we see more growth in the country. In the meantime, we have at least recovered full participation in the choices made by Europe, and this is a significant step forward. The threat represented by the yield spread between German and Italian bonds forced us to make the right economic choices; let’s hope that we will not live to regret these decisions in the event of more domestic political turbulence.