Financial Times
December 4, 2011
Angela Merkel and Nicolas Sarkozy are as far apart as they ever were. But with five days to go until the next summit, their political standoff is part of the usual pre-summit poker game. The German chancellor and the French president always reach some agreement in the end. My main concern is they will again fudge it.
Contrary to what is being reported, Ms Merkel is not proposing a fiscal union. She is proposing an austerity club, a stability pact on steroids. The goal is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution. She also proposes automatic sanctions with a judicially administered regime of compliance. She rejects eurobonds on the grounds that they reduce pressure on fiscal discipline.
Mr Sarkozy’s proposal could not be more different. He has said that he is not prepared to cede any sovereignty to the centre. He wants to retain the inter-governmental approach that has so abysmally failed in the past. He opposes any attempts to strengthen the European Commission, or to involve the European Court of Justice in adjudicating on breaches of the rules. While rejecting Ms Merkel’s obsession with austerity, he is not interested in a genuine fiscal union either. He is open to a eurozone bond and to the European Central Bank having the role of lender-of-last resort. I would surmise that this is because France would stand to benefit from both.
Mario Draghi, meanwhile, insists politicians deliver their part of the bargain before he does. The ECB’s president has so far resisted pressure on him to provide an unlimited backstop to the system, either by backing the European bail-out fund or through a direct guarantee of long-term bond market prices.
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