EU united front masks individual concerns

 

EU FINANCE ministers were at pains to present a united front last night as they pledged decisive action to reinforce the euro’s foundations.

If anger at Germany’s unilateral ban on naked short-selling of financial stocks was emblematic of the disjointed response to the euro’s debt crisis, smiling faces after the meeting in Brussels smacked of an effort to paper over the cracks.

French finance minister Christine Lagarde and German counterpart Wolfgang Schäuble made light of tension between Paris and Berlin when they convened a joint press conference. “We think long term,” said Lagarde when asked about the German move on Tuesday evening, which roiled markets and sent the euro plummeting. For his part, Schäuble played down German demands for a change in EU treaties as part of the effort to give teeth to a lax euro rule book.

“We should do it as fast as possible,” he said of moves to intensify budgetary surveillance and deepen economic co-ordination.

This was code for putting treaty change on the back-burner, even if that option hasn’t been ruled out definitively. Still on the table is the question of suspending for a period voting rights on particular issues when EU ministers meet, something that would require treaty change. It was more or less the same with other radical proposals such as debt restructuring and the issuance of “Eurobonds”, collective debt for euro countries.

“Forget it,” Lagarde told The Irish Times of the debt-restructuring option, adopting a markedly more decisive tone than European Council president Herman Van Rompuy, who chaired the meeting. Van Rompuy had said restructuring could be a long-term crisis-resolution option, but took care to say it was not one for Greece or for the €750 billion loan guarantee scheme for any other distressed country.

It was Van Rompuy himself who raised the possibility of Eurobonds coming into the frame in a letter to finance ministers, but not to any great welcome around the table. “We did not discuss this idea in any detailed way,” he said.

Minister for Finance Brian Lenihan was even more direct on that front. “I found very little enthusiasm for that, I have to say.”

For Lenihan, the meeting was akin to a “constructive” second-stage Dáil debate on legislation: “Everybody agreed with the principle.” This the need for significantly greater budgetary discipline in the 16 countries who share the euro and in the wider EU.

On a proposal from the European Commission to examine draft budgets in Brussels before national parliaments, there appears little appetite. Any new framework would have to accommodate the “important role” of parliament, Lenihan said. Other ministers have voiced similar concern.

Although everyone says the commission’s proposals to intensify budgetary surveillance go in the right direction, they don’t want to erode national prerogatives. This raises questions as to how far they will travel down the road to tougher central scrutiny and “peer pressure”.

With the European authorities under pressure to seize the initiative in a crisis which has upended many of the basic tenets of monetary union, the objective of yesterday’s meeting is to significantly strengthen the euro rule book.

By kicking to touch seismic options such as restructuring, the ministers narrowed the range of measures that might be deployed to strengthen the inadequate rule book. In short, they will operate within existing provisions to cast aside the unwillingness to impose financial sanctions on errant governments. This power lies within the scope of current legal provisions but has never been deployed.

Fining a country could be a “nuclear” option. In the heat of the current imbroglio, however, it was market pressure that led Spain and Portugal to adopt tough new austerity measures. Reviewing the Stability and Growth Pact could well see the inclusion for the first time of competitive indicators such as unit labour costs and the role of expanding indebtedness in a country’s growth. That makes sense but is deeply political.

This work is complex and has exposed deep tension between competing economic traditions. From Berlin come loud demands for euro countries to adopt Germanic rigour in their budgets.

In the opposite direction flow demands for Merkel to stimulate consumer demand in Europe’s largest economy.

The debate will continue for months. The aim is to produce an interim plan for the next summit of EU heads of state and government in four week’s time with a view to final decisions by October.

Meanwhile, battles on the markets continue day by day.