The Germans don’t want to kill the euro, just shape it in their own imageby Manneken Pis / December 15, 2010 / Leave a comment
Have the Germans, long regarded as architects of European construction, switched sides and joined the demolition gang? Throughout the euro crisis, officials in Brussels complained bitterly about Berlin, first about foot-dragging during efforts to save the single currency, then about comments that destabilised the markets. Journalists who criticised the EU economy have been warned darkly about being used by the Germans to push the weaker, southern economies out of monetary union.
But it is hard to see why Berlin should want to take the bulldozers to the euro, or to create a “neuro” made up of northern nations. Germany’s economic success is based on exports and the eurozone accounts for more than 40 per cent of those. If the euro broke up, Germany would see its exchange rate soar and sales to southern European nations plummet.
What is going on in Berlin appears to be a mix of calculation and domestic politics. Logic may tell Angela Merkel, the German chancellor, that she needs to bail out weaker nations because German and French banks would take a loss if they defaulted. But public opinion has taken a Eurosceptic turn in a country where wages have been kept low during the slow, painful, process of economic reunification.
Hence Merkel’s brutal plan to remould the euro in Germany’s image. She argues the single currency was partly undermined by uncertainty over its future regime and it is therefore essential to set out the detail of the system that will operate after 2013. Behind this lies a determination to improve on the stability and growth pact, the toothless eurozone rulebook. If it is made clear that private bondholders run the risk of losses—or haircuts—during future debt crises, investors will demand higher returns on bonds issued by nations that do not run a tight fiscal ship. This will force errant finance ministries to change their ways—or see the cost of borrowing rise substantially. In short, no one will be able to buck the markets with impunity in the way they have ignored eurozone rules. The question is whether these conditions will ultimately prove too tough for struggling smaller nations on the periphery.
LISBON’S REAL WINTER
Despite the euro’s travails, José Manuel Barroso, the European commission president, is looking remarkably chipper. This is because it’s been a bad few months for his rival Herman Van Rompuy, president of the European council. Smart, understated and wily, Van Rompuy nevertheless found the second half of 2010 hard to navigate—symbolised by his gaffe in which he referred to the euro’s “survival crisis.”
Other setbacks took the gloss off the Belgian ex-premier. Van Rompuy chaired a group of finance ministers given the job of creating new rules for the euro. But his “task force” was outwitted by the commission, which exercised its right to make formal proposals on the same issue. While drawing on Van Rompuy’s work, the commission grabbed the credit for tabling the plan and the task force was wound down.
But more damaging for Van Rompuy was the reassertion of power by Paris and Berlin, which has cut him out of the action. The clearest example of this was the Deauville agreement between Merkel and French president Nicolas Sarkozy to change the EU’s treaty. Further good news for Barroso is the fact that his other potential rival, Catherine Ashton, has stayed doggedly low-key as EU foreign policy chief. One year on, the Lisbon treaty that created his rivals’ posts has added lamentably little to the EU’s profile or leadership—and that’s been great for Barroso.
EEL IN GREEN SAUCE
The rotating presidency of the EU is still doing good work—even though Lisbon was meant to render it unimportant. Belgium, the current holder, has been organising a “Week of Taste” for Europe’s leaders to show their prowess in the kitchen. The Belgian commissioner, Karel De Gucht, and his Dutch counterpart, Neelie Kroes, together created cheese croquets and eel in green sauce, a television crew following every step in their culinary triumph. Meanwhile Janez Potocnic, the Slovenian commissioner, teamed up with some students to prepare “organic dishes with seasonal vegetables.” Sadly, the Finnish commissioner, Olli Rehn, has not been invited to explain how to prepare the perfect reindeer steak. He’s responsible for the euro, so perhaps he had other commitments.