Zig-Zagging towards European Federation?




Euroland has pulled back from the brink with a Greek bailout deal close to French President Nicolas Sarkozy’s heart, but is this good news or bad? That depends entirely on whose press you read…

Nicolas Sarkozy - Caricature

Federated by courtesy of the French President? Image by DonkeyHotey via Flickr

(Read more online French News here)

The outcome of the brinkmanship between Germany and France has produced a framework plan to save the euro but raised wider concerns about European democracy itself.

Martin Vander Weyer business editor of UK magazine The Spectator sets the tone for the sceptical brigade :”…you would have to be a wild optimist to believe that this week’s massive second bail-out for Greece involving a ‘haircut’ for private-sector holders of Greek debt and combined with a beefing-up of the EU’s ‘financial stability’ fund and an alleviation of emergency loan terms to Ireland and Portugal represents any sort of definitive settlement. And you are especially deluded if you believe assurances that the €16 billion write-down to be taken by European banks on Greek bonds (about 20 per cent of the value of their holdings) is a ‘unique’ solution that will never be applied elsewhere in the eurozone. Likewise, it will be a miracle if the Greek government, having signed up for tough austerity measures in return for being permitted a partial default without eviction from the euro, is actually able to impose them on a populace that would rather burn public buildings than pay taxes to fund them. Nor will Angela Merkel of Germany face a smooth ride when her own taxpayers figure out the potential cost of them of this step towards centralised fiscal governance across the eurozone… Sarkozy and a reluctant Merkel have emerged from this hurried summit waving big ideas for the future of Europe and made the mood music required to calm the markets, at least for a while.”

Meanwhile Jens Weidman, president of Germany’s Bundesbank (and a council member at the European Central Bank) is concerned that the new Greek bail-out “risks undermining the foundations of the European Union…By transferring sizeable additional risks to aid-granting countries and their taxpayers, the euro area made a big step toward a collectivisation of risks in cases of unsolid public finances and economic mistakes,” he said.

Der Speigel carries an unsigned article warning that Thursday’s “emergency summit raises new questions about the future of the euro — and the structure of the euro zone itself.” It quotes Jürgen Matthes, at the Cologne Institute for Economic Research, who says “the danger still isn’t over just because the ratings agencies have agreed to cooperate. It can’t be a guarantee that the financial markets reject,” he said, adding that investors may yet react to Greece’s short-term default with irrational speculation against other debt-ridden nations. “This could be playing with fire. It could still start a conflagration”. Matthes points to an announcement from the ratings agency Moody’s, claiming that other nations may be downgraded in the event of Greece’s short-term non-payment…

Der Speigel goes on to note that French President Nicolas Sarkozy “is already talking confidently about the EFSF, which was his pet idea — as the European version of an International Monetary Fund”, which it adds “is feeding fears that Europe could become a transfer union.” Berlin daily Der Tagesspiegel noted: “… the currency union is worth the sacrifice, above all for Germans, because we have the euro and its positive influence on our export markets to thank for our prosperity … Even the stability and growth pact never managed to replace the missing EU-level coordination in financial and economic policy that the euro requires. But that is the direction Europe needs to head. The Brussels summit represents the first real step.”

Reviewing the deal in The American Prospect magazine Yannis Palailogos notes: “The new flexibility given to the EFSF (assuming it is approved by national parliaments)—especially the ability to intervene in secondary markets—is vital and has long been called for. But for it to truly convince investors, the rescue fund must be increased in size in a major way (some, like the redoubtable Wolfgang Münchau at the Financial Times, say it could need to be tripled in size from its current 440 billion euro limit). Otherwise it is hard to see how it can credibly be expected to support Italy and Spain through potential future borrowing hardship. And if the markets cannot see this, their initial enthusiasm about this week’s summit will turn out like previous ones: It will be a short-lived crush, followed by a scornful rejection, of an object of desire that proved, behind its attractive exterior, to be quite vacant.”

In France reactions are mixed with Hervé Nathan chief economics reporter on Marianne noting: “This plan would have been perfect at the beginning of the crisis. It would certainly have allowed Greece to face its economic and social difficulties from a much better position. It would have provided the tools for European powers to fight small-scale speculation. But today no one believes that the deal is one capable of  rescuing Spain and Italy, both of which are already the target of ‘market forces and the rating agencies. Finally, the plan provides no European policy to support growth in Europe, no coordination of national policy other than deficit reduction, no plans for coordinated investments. The planned Eurobonds will not for example be used to fund major facilities in the euro area. Once again the Euroland train is late in leaving the station.”

Jean Quatremer at Le Monde believes the Greek crisis has now taken member states much farther down the road towards a Federated Europe. “While one can not yet speak of Eurobonds since the loans are only for countries in crisis, one European diplomat said: ‘But we are getting there … The limits (now set) cannot be maintained for very long’. Furthermore the integration of the euro area cannot be limited strictly to its financial aspects: it must also make ‘a qualitative leap in terms of the economic governance of the euro area’, as Nicolas Sarkozy insisted on Thursday, citing in particular the need for a ‘European rating agency.’ Lastly according to the German Chancellor: ‘Germany and France have decided to submit bilateral proposals (on these issues) in late August or early September.”

Meanwhile bringing a critical eye to bear on the deal US academic Art Goldhammer writes in his French Politics blog:”…What no one got is what is arguably needed: a Eurobond and a transnational fiscal authority to manage its issuance and collect taxes to service it. Despite the incense that has been burned to the idea of yet another instance of “progress in crisis” toward a truly federal European Union, I see no evidence of a more coherent future: just another patchwork solution, and yet another pseudo-independent, unaccountable institution that Sarkozy has taken to calling the “European Monetary Fund,” as though being in such wretched shape as to require a “permanent emergency organization” at one’s disposal were something to boast about…”

Ambrose Evans Pritchard in the UK’s Daily Telegraph , a longstanding prophet of euro-doom, has a significant  quote from Otmar Issing about the impact of the deal on Western democracy:  “Otmar Issing, the European Central Bank’s founding star, has warned that events are on a course that threaten the ruin of Germany. ‘We must not forget that Western democracy began through parliamentary control over tax and public spending,’ he said”.

The wider threat to democracy is further underlined by Janet Daley an American columnist for the UK’s Daily Telegraph who calls the euro bail-out: “a conspiracy against democracy … When you exercise your right to vote for one party or another in national elections, you are, more often than not, doing so on the basis of its fiscal policies: that is, what it proposes to do about tax and spending. There could scarcely be a more important function of the electoral process than this. If the government is not accountable to you for what it does with your money, and how much it will take from you to do those things, then what is left of your power as a citizen?… Deriding public opinion by dismissing it as populist, ignorant and inflammatory is not an incidental feature of the European project: it is essential.The will of the people is not a mere irritant or an obstacle, to be overcome under the pressure of particular circumstances. It is inherently volatile and dangerous: a threat to the benign, enlightened governance which only an apolitical bureaucratic administration can deliver… If we are going to learn from history, we might look at what dreadful things have followed when populations felt outraged and powerless, at what happens when people come to believe that their own political elites are conspiring against them in a way that deprives them of any voice or effective veto.”

Whither a Europe where politicians on the bridge insist on cruising ahead despite the icebergs while voters hurl sheet anchors out of all available portholes below decks. This is what the emergent populist parties in Europe are banking on.

Story: Ken Pottinger
editorial@french-news-online.com

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