Palm Beach, FL 11/30/11 (StreetBeat) --Henry Kissinger, the US Secretary of State in the mid-1970s, famously said something to the effect, “When I call Europe, who will answer the phone?” Well, he didn’t say back then; I guess that would have taken some of the pithiness out of the pointed quip. But I wonder who would take the call today; let’s give it a shot. Hello, this is Europe, how may I direct your call?
I’d like to talk to the person in charge, please.
Sorry sir, you’ll have to be more specific if you could. Do you want to speak to a representative of the European Parliament, or someone from the Council of Ministers? Maybe Mr. Von Rompuy, head of the European Council, will be able to answer you inquiry, or it could be the President of the European Commission, Mr. Barroso, who will best serve your interests.
Hmmm, I’m not sure; I’d like to talk to the person responsible for solving the European debt crisis, please.
Oh, but of course; I’ll connect your call straight away.
Oui…Guten Tag.
To whom am I speaking?
I’m Sarkozy, she’s Merkel, and together we are Merkozy. (tee hee, I love doing that.) Who’s this?
Never mind, I have my answer.
“France and Germany are urgently preparing contingency plans to jump-start tighter eurozone economic governance should treaty change prove too difficult…” says the Financial Times. This sort of bi-lateral negotiation has become a tradition when Europe feels the pressure of a ticking clock as yet another deadline approaches; this time it’s the December 9 gathering of EU heads of state that has them feeling the pinch. The previous all important summit meeting was in late October and that one too was preceded by a furious round of shuttle diplomacy between Paris and Berlin. But the further the can gets kicked, the closer it comes to the fork in the road; either the euro zone countries become more intertwined or they splinter apart in some fashion. It appears that time is running short and fundamental decisions, not just bailout plans, must be made. However it is possible that the process is just as crucial to the outcome as are the options that come to the table; that’s because the currency union has seventeen members, not two.
France and Germany are the biggest countries in the euro zone. France feels the weight of history as the beating heart of the union and the originator of the entire project to unite the continent. Germany, however, holds all of the aces in this hand and France knows it. So in an attempt to prevent a complete reshuffle of the euro zone deck France wants to influence, as much as it can, how Germany plays its cards. So Sarkozy and Merkel go one on one while fifteen others wait on the sideline. Someone has to make the decisions, but idea of the Lisbon Treaty was for a majority to be a number greater than two. “The problem is that this new-found euro governance by France and Germany may be necessary by want of any other governance structures, but democratic it is not,” said a euro zone diplomat to the Financial Times a couple of weeks ago. There would seem to be a difference between a country and its people agreeing to an austere future for the greater good and being told what it has to do by the paymaster. The outcome might be the same, but the manner in which it is enacted might be a factor in deciding to take action inside or outside of the union.
The “principle of subsidiarity” is enshrined in Article 3b of the Treaty of Lisbon. This concept means that the Union shall act only if an objective cannot be sufficiently achieved by the member states. It is in essence a principle that protects the sovereignty of the currency members from intrusion of the Union. It can be said that the boundary provided by this principle has been crossed in relation Greece, but this was at the insistence of the group. It might be a more difficult pill to swallow if the agenda is seen to be set by just one country or even a handful. If the “principle of subsidiarity” proves too flexible to depend upon then so too is it unknown what amount of sovereignty will be sacrificed in the future, which may be an issue for the populace before it is for the leaders of a particular country.
Germany says it wants to embrace the euro and the euro zone, but there is a concern that what they mean is more akin to a bear hug than it is a cuddle. Germany does not want the single currency to become a singular disaster. Chancellor Merkel says it is time to move together, but she insists it be done on her terms. It would be difficult for an outside observer to refute her argument. The Stability and Growth Pact was supposed to ensure that member countries followed the fiscal and budgetary guidelines, but it didn’t. The euro was sold to the German people as a shield, but instead they have been asked to pay for a ring fence to surround some of the overly indebted members. The ECB was supposed to be like the Bundesbank, but now there is an effort to get the central bank to fire up the printing press. “German officials insist their top priority is securing treaty change by the end of 2012, which gives clout to more stringent budget rules,” says the Financial Times, “But there is a growing realization in Berlin that a deal endorsed by all 27 member states may take too long. This helps French officials pressing for a rapid intergovernmental pact, between willing eurozone countries and implemented through new institutions.” But therein lays the rub. I think the German drive for tougher and enforceable budget rules should be viewed as long term goal, but although it is not unrelated to the next rescue plan it should be viewed as distinct from the short term need to keep the Greece, Italy, et al, from falling off the cliff. But if they decide to pursue the French strategy, then these agreements would likely be made one at a time, and with, I guess, no guarantee of uniformity. So, even a solution to the near term may not make clear the path forward into the longer term. Therefore, says the FT, “The prospect of a breakaway coalition of willing fiscal hawks has stoked concern in Brussels and among some weaker eurozone states, who fear it is a distraction from fighting the crisis. Some European officials are also doubtful that Paris and Berlin have overcome big differences over details of fiscal integration, given France’s opposition to strict automatic penalties for breaking budget rules.”
So, as it turns out, rescuing today does not necessarily explain the future or even if this Merkozy thing is a relationship or just a fling.
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