National sovereignty takes drastic hit as depth of euro zone debt crisis bites

THE ROAD AHEAD:THE SITUATION in the euro zone grows more volatile by the day. No matter what happens next, the sense grows that another Rubicon was crossed on Wednesday night when Germany and France called Greece to order in the most brutal fashion.

German chancellor Angela Merkel and French president Nicolas Sarkozy threatened to cut off crucial rescue aid to Greece if its people did not back a now-cancelled referendum on its membership of the euro. Whatever the eventual outcome of the fevered intrigue in Athens, this was a startling intrusion into the internal politics of another member state.

In all likelihood there will be more of this. There is no end in sight to the crisis. As G20 leaders left rainswept Cannes last night, the failure of the non-Europeans to step forth with investment for the euro zone bailout fund marked a big setback. The absence of agreement on new resources for the International Monetary Fund can be seen in the same way.

It is a given by now that the debt debacle has magnified the power of Germany and France, whose alliance remains the cornerstone of Europe’s single currency. This is hardly a relationship of equals: Merkel leads, Sarkozy follows. But the longer the crisis continues the greater is their resolve to impose their will on other euro countries.

This cuts to the heart of the problems posed by the debt emergency and underscores a drastic seepage of national sovereignty in the new European order. The saga draws euro zone countries deeper and deeper into each other’s affairs. Whether that proves politically sustainable can only be guessed at.

The dressing down Merkel and Sarkozy meted out to Greek prime minister George Papandreou on Wednesday night was extraordinary. Greece is not a member of the G20 group, yet he was abruptly summoned to Cannes for a humiliating pre-summit lecture on the error of his ways.

Papandreou apparently believed he could not survive without calling a referendum on the EU- IMF deal. Still, the manoeuvre seriously undermined what little confidence there had been in a new European plan to assert control over the crisis. It was a grievous blunder on the part of the Greek prime minister, one that made a bad situation in the euro zone much, much worse. Another whirlwind swept markets.

The reality is that all euro zone leaders – and Papandreou more than most – are not at liberty to act on the national stage as if their moves had no implications for everyone else in the drama. That is a golden rule by now and Papandreou’s unexpected infringement sparked anger, dismay and panic among his counterparts.

But was it truly necessary to frogmarch Papandreou and his finance minister to the French Riviera? Was it apt for Sarkozy to declare to the world that Athens would not receive “a single cent” more if it strayed from the bailout plan? Was it in order for Merkel to bluntly tell a Greek prime minister how to frame a referendum question and his people how to vote?

Two observations arise. First, the very force of the Franco-German manoeuvre says much about the level of extreme tension in the euro zone right now. Although Greece is the epicentre of the crisis, the reverberations continue to spread far and wide.

The agreement of Italian premier Silvio Berlusconi to succumb to IMF oversight of his austerity plan marks yet another desperate bid to hold back the tide.

Second, the display is open to the interpretation that it merely makes public the kind of talking that goes on behind the scenes.

It is hardly a secret that Merkel and Sarkozy are running the show, but their blatant direction to the Greek leader is an explicit demonstration of the power they prefer to exercise in private.

Although this tends to be shielded by diplomatic nicety and the laborious “process” element in European politics, the fact remains Berlin and Paris are in command. With Europe and the IMF keeping the lights on in Athens, it is not by Papandreou’s hand that the privately-held element of his country’s national debt is to be cut by 50 per cent under the latest bailout.

To see high-handed conceit in Sarkozy’s claim that he does not want to involve himself in Greek domestic politics is to see the truth of the matter. The Cannes intervention shows that he and his German ally feel free to meddle if Papandreou or any other leader refuses to play ball.

Taoiseach Enda Kenny and his predecessor Brian Cowen had an unsavoury taste of this when Sarkozy, backed by Merkel, campaigned for many long months for a watering down of Ireland’s corporate tax regime. Dublin prevailed, eventually, and now finds itself paraded as some kind of star pupil in the bailout class.

The clear risk remains, however, that any deviation from the course set out in the EU-IMF pact would invite more trouble from Paris and Berlin.

To be out of favour is to be under threat. This will make it more difficult for Kenny to make the case in Europe that the Merkel-inspired move to recast the European treaties is not a good idea.

Papandreou’s zigzagging this week brought the euro zone – and his own country – to a new low. The lesson learned is that national prerogatives go out the window when things go really bad. This is one of many sacrifices made in the fire fight to save the single currency, but fundamental questions of democracy legitimacy abound. The battles continue.