Merkel, Sarkozy to Europe: shelve your sovereignty, save the euro
The plan put forth from the German and French leaders to save the euro amounts to a call for European states to give up full control over their own spending.
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To be sure, people have gotten used to the euro and panic about the economic situation is rife. Greece and Italy now have appointed technocratic prime ministers who are largely doing Brussels' bidding on financial matters, and no pitchforks or burning hayricks have been spotted (though major unions in both countries are threatening national strikes over austerity measures).Skip to next paragraph
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The chance for change
So it's possible that treaty changes will be able to go through in this environment – though it's hard to see that happening without an extended period of debate, revision and in many cases public referendums. Individual states are still, well, states, with different political cultures and different interests. Some politicians in the UK, not a member of the eurozone but part of the 27 member European Union, have already signaled unease over treaty changes that could effect the EU as a whole and said they'll insist on a public referendum.
This all signals a drawn-out process. But the letter Merkel and Sarkozy (being called "Merkozy" now by many wags in the financial press) released today says "steps need to be taken now without further delay." Investors signaled they weren't anticipating fast action today, with Europe's major stock indices edging lower.
"We need more binding and more ambitious rules and commitments for the Euro area Member States. They should reflect that sharing a single currency means sharing responsibility for the Euro area as a whole," they continue. "The main building blocks of the new Stability and Growth Union are: A strengthened institutional architecture. Euro area governance needs to be substantially reinforced."
They go on to suggest that fiscal discipline should be maintained by "enforcement," a role for the European Court of Justice in "verification" that legislation on balanced budgets and other matters have passed, and rules that would lead to "automatic consequences" if a eurozone member's deficit grows to more than 3 percent of GDP. They're also calling for greater integration of national tax, labor, and financial market policies.
Where does Europe go from here?
We'll certainly know a lot more after tomorrow. A shrinking of the eurozone in the coming year remains a possibility. Valery Giscard d'Estaing signaled that in an interview with Reuters today. The former French president, who championed Greece's entry to the eurozone in 2000 said: "Greece could stay in the eurozone but it is very difficult to achieve economic recovery with a strong currency.... Is it better to use a national currency for a period, or have the safety of a strong currency? It is Greece's choice."
What he's talking about is the ability of a nation that controls it's own currency to try to inflate its way out of a crisis like this by printing money, something that makes exports and tourism more competitive and amounts to a haircut on existing debt. Greece's international creditors wouldn't like that at all. But the country's citizens are none too happy with the current situation.
As for reworking existing treaties? Mr. Giscard, the great proponent of European integration, thinks that's a bad idea: "Reforming treaties that have to be modified by unanimous vote is impossible. Choosing the path of treaty revision with 27 (EU members) would make the crisis last and would give the impression that it is intractable."