All aboard for a new two-speed Europe
.By Philip Stephens
Published: February 10 2011 20:04
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Europe is on the move. After years rusting in the sidings, the Franco-German locomotive has chugged back into view. Angela Merkel is at the controls.
Nicolas Sarkozy can be seen beside her in the cab. These two leaders will never be soulmates, but they seem to have agreed on a destination. It’s called European economic government.
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There is a snag – there always is when it comes to the European Union. The German chancellor and French president want to couple only 17 of the Union’s 27 carriages to their refurbished train. David Cameron’s British government is perfectly content to wave goodbye from the platform. Poland, Sweden and others outside the single currency are deeply unhappy about the prospect of a two-speed Europe.
There is a snag – there always is when it comes to the European Union. The German chancellor and French president want to couple only 17 of the Union’s 27 carriages to their refurbished train. David Cameron’s British government is perfectly content to wave goodbye from the platform. Poland, Sweden and others outside the single currency are deeply unhappy about the prospect of a two-speed Europe.
The eurozone crisis is far from over. The markets have been relatively calm of late, but politicians would be foolish to mistake respite for resolution. Spreads in the bond markets are a reminder that the debt problems behind last year’s collapse of confidence in the single currency have not gone away. Europe’s banks are in anything but good shape.
Greece and Ireland could yet sink under the burden of accumulated debt. Portugal may need a bail-out. Public declarations that there can be no sovereign defaults conceal private doubts among policymakers about debt traps. Finance ministers are keeping their fingers crossed that Spain has done enough by way of deficit-cutting to create a firebreak between small and larger economies.
Ms Merkel’s plans for a new competitiveness pact among eurozone members – synchronising everything from public debt limits and tax rates to pension ages and educational qualifications – has Mr Sarkozy’s seal. Elsewhere, applause is muted.
For some, the proposals intrude too far into national economic decision-making. Belgium does not want to give up wage indexation; Ireland thinks it would be suicide to abandon its low corporate tax rates. Others say the package looks like a distraction from the more pressing need to increase the resources of the European financial stability facility. Ms Merkel, meanwhile, is continuing to dodge a serious discussion about the fragility of the continent’s – read Germany’s – banks. All in all, the locomotive faces plenty of amber lights before it picks up speed.
For all that, the change in the political atmosphere in Berlin and Paris is important. It conveys a sense of political grip. Last year’s euro crisis was in part a bet against the political resolve of governments. It matters that Germany and France are now operating in concert.
The relationship between the two nations has been mostly bad since Helmut Kohl left the chancellery more than a decade ago. Ms Merkel and Mr Sarkozy have never disguised their mutual disdain. But political necessity has created its own energy. They want to hold on to the euro; and that means working together.
The many fumbles and hesitations of last year had put a question over whether the continent’s leaders possessed sufficient political will. Ms Merkel, in the description of one member of the board of the European Central Bank, viewed markets in the manner of a theoretical physicist.
The chancellor also began to sound like Britain’s Margaret Thatcher in her reluctance to commit German money to the European cause. For his part, Mr Sarkozy was all energy and little direction. As for the eurozone countries under siege, they baulked at fiscal austerity.
The debate now has a different tone. Ms Merkel has set out Germany’s terms for its sustained backing for the single currency. Not everyone likes them, but Berlin is treating the defence of the euro as a fundamental national interest – even at the cost of a bail-out of some of its feckless partners.
A broken eurozone would threaten most obviously Germany’s economic interests – exports to its neighbours still dwarf sales to China. But there is another dimension. For more than half a century European integration has provided the anchor for German foreign policy. Cutting the chain would be a momentous decision.
Let’s be clear. Ms Merkel is not about to accept instead a federal fiscal union in which she would write the cheques for errant Club Med nations.
But she now admits that sustaining the euro demands the closer economic co-ordination – and political oversight – long sought by France. Instead of opposing European economic government, she has decided to define it.
The chancellor has likewise agreed that the eurozone’s leaders give stronger political form to monetary union by holding regular summits of 17. At present, only finance ministers meet independently of larger gatherings of the 27. The Franco-German plan would see heads of state and government of the euro group bloc getting together in advance of the regular EU summits.
Mr Sarkozy has made his own concessions – bigger in their way than those of Berlin. If Germany cannot afford to let go of the euro, holding on to it is viewed in Paris as an almost existential imperative. Monetary union is Europe.
A breakup of the euro would foreshadow more than a decisive weakening in the ties binding Germany to Europe. It would rob France of its remaining political leadership. Berlin, I heard on a recent visit to Paris, would look eastwards again to Russia and to its new export markets in China.
Worse, France might find itself left behind in a second division of European economies rubbing along with Italy and Spain. You do not have to know too much about Gallic pride to imagine the sheer horror such a possibility elicits among the Parisian elites.
Better France accepts that Germany is in the economic driving seat. It has its own quarrels with some of Ms Merkel’s proposals. But Mr Sarkozy seems pretty much to have decided that a German euro is infinitely preferable to no euro.
Where this leaves those nations outside monetary union is not yet entirely clear. On a joint visit to Warsaw this week the German chancellor and French president offered assurances that Poland and the rest would not be shut out completely. But the euro crisis has delivered a powerful political jolt.
Sluggish it may be, but the locomotive is on the move again; and the laggards may well be left behind.
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