Twin-track discipline/economic recovery approach has won day. Will the upcoming European Council be of historic proportions? Probably, so long as we accept that it cannot provide all the answers hoped for and that differences between member states will not all be ironed out. A draft of the conclusions is already circulating. It consolidates the twin-track approach of budgetary discipline and economic recovery (something which, some time ago, seemed little more than a pipedream). The first chapter is even devoted to Growth, Investment and Jobs. This is a politically significant choice. The content, however, remains of the greatest importance. We already know that differences of approach will not all fade away at the Council.
There could, nonetheless, be progress and some reciprocal concessions if sensibilities and appearances are put to one side. For some weeks now, commentators have been chewing over the differences in the approaches of Germany and France on how things should be done. For Ms Merkel, financial instruments cannot come into play without joint oversight and political checks, while for Mr Hollande, sovereignty cannot be ceded without shared financial liability. Who has the better claim? Presented in this way, the differences seem insurmountable for reasons partly objective and partly related to the domestic political situation of each. It must be realised and understood that what is at stake is the kind of Europe we will have in the future. That cannot be decided in two days, however. The federalists have not lost sight of the final target. They have seized the opportunity to relaunch their initiatives. These, however, are long-term, while the aims of this Council are more limited and urgent: overcoming the crisis and restoring confidence in Europe both within the EU and across the globe.
How Mario Monti sees the sequencing. The European Council will probably go along with the twin-track approach of budgetary discipline and economic recovery and will stand firm on real control over financial markets. The eurozone will begin a phased updating of instruments to tackle speculation. In an interview with journalists of various countries, after the meeting in Rome last week of the leaders of the four biggest eurozone economies (Germany, France, Italy and Spain), Mario Monti was more forthright in his comments than usual.
He said: “The markets discourage good conduct and penalise the efforts being made. When a state meets its obligations on public finances and structural reforms, it would be useful to have an instrument that can discipline the markets in terms of interest levels. … It cannot be right that a country which has made huge efforts should be subjected to such high interest levels”. This was a clear call to challenge speculation. Mr Monti said that what might at first sight appear a technical issue is, in fact, of much more general significance: “Most of Europe is continuing to bear very high interest levels which are hitting companies and employment. If this anomaly continues, the frustration of citizens towards Europe will further increase, when, to exit the crisis, it is more integration that is required. The European Council must act quickly for the financial, economic and political points of view”.
The spirit of this call is clear. In reality, the three areas he mentioned form a single whole. The single currency presupposes observance of the rules; what results is the economic union, which, in turn, involves ever more political union. If these are not present, Mr Monti does not feel that the single currency can survive. It is true that political union will take years, but the foundations have to be laid now. We know the enthusiasm with which this sequence is explicitly stated by the European Central bank. This week's summit cannot, of course, do miracles and the obstacles are sometimes unforeseen. For example, Germany has had to postpone signing the treaty on budgetary discipline after the domestic ratification procedure was slowed by the constitutional court, leading to a similar delay for the European rescue mechanism, which was due to come into effect on 1 July. Everything has been delayed by a number of weeks. The objective remains, however.
Two imperative areas for progress. The European Council will be considered a success if the eurozone explicitly restates its desire to make headway in two key fields:
(a) giving itself the instruments that will allow it to control the euro market and to combat speculation effectively. Action in this area is quite extraordinary at the moment, with all the institutions involved. Our newsletter regularly reports on what is happening, but public opinion seems blissfully unaware of it. The armoury of instruments continues to grow and become more finely honed, covering not only specific financial legislation but also the general operation of the huge border-free market (even though member states' views do not always chime). A firm decision on the financial transactions tax (or Tobin tax), by which those governments which support such a move express the willingness to put it in place among themselves, would send a signal of extraordinary importance. And this is just one example.
(b) sharpening and strengthening the instruments which promote economic activity and growth. Here, differences between the various institutions and among member states are sometimes significant, which is understandable as those states which are “net contributors” to the EU budget of course hold different positions from those in the opposite situation. It would appear that some points have been firmed up with the meeting of Germany, France, Italy and Spain in Rome.
Oversight of national budgets and its extension. The points mentioned imply difficult decisions in some cases. The report drafted by Messrs Van Rompuy, Barroso, Draghi and Juncker provides for detailed and rigorous procedures on oversight of draft national budgets. Even as things stand, EU evaluation precedes presentation of draft budgets to national parliaments. The new paper, however, considerably beefs up European oversight and powers of intervention. A summary of this document is to be found on the following pages of this newsletter, and the text is reproduced in full in our series Europe Documents.
The importance of this report is clear: it implies limits to the independence of member states, if financial accountability becomes shared. The implications could extend to all areas. In Berlin, the talk is of pensions: is shared budgetary accountability possible if one country raises the retirement age to 67 while its neighbour lowers it, in some cases to 60?
Mr Van Rompuy will put this matter to the summit, suggesting that a link be created at European level between life expectancy and pension age. Member states would undertake to reform their pensions systems within a set timescale and according to joint criteria - and these would no longer be recommendations but legally binding objectives. Van Rompuy says that, at the present moment, the focus should be on achievable reforms within the framework of the treaties are they currently stand: “Wanting to change the treaties will mean opening debates of all sorts and lasting years.” He believes that this is not the right time. Not everyone shares this view. (FR/transl.rt)
* * * * * * * * * * * * *