Lisbon III? You had better believe it if Chancellor Merkel has her way

ARE you ready for Lisbon III?

You had better be, if Angela Merkel has her way. Yes, contrary to all those promises that there would be no more constitutional treaty-making for a generation, Frau Merkel wants to put Europe through the agony once more. And why? Because the treaty-cum-constitution eventually passed here barely six months ago hasn’t proved to be the panacea for the EU’s ills that it was hailed as.

Leave aside for a moment the fact that, just to confuse everybody, Europe now has three presidents. Let us pass over too that the quasi-foreign minister Baroness Cathy Ashton is patently out of her depth. No, what has Angie cross are the spendthrift ways of the rest of Europe.

The German people were told when they accepted monetary union that the euro was really the Deutschmark by another name. A strict rein would be kept on monetary policy; there would be penalties for those countries that bust their budgets and, above all, the German people would not have to cough up if their southern partners were ill-disciplined.

The reality, of course, has been a rude awakening for the average German. Some 40% of them now think they would be better off outside the euro according to a recent poll.

Even before the financial crisis, most eurozone countries were in near-permanent violation of the rules they themselves had set. Annual budget deficits routinely exceeded the limit of 3% of gross domestic product, while total public debt stayed well above the 60% mark in many countries. The punishment for all these transgressions? Nada, rien, nothing. Apart from some admonishing words from Brussels, no fines or sanctions have ever been imposed on any member state.

With sanctions requiring a qualified majority, but most countries violating the rules, it was entirely predictable that the pledge of fiscal responsibility within the monetary union would remain an empty promise.

Still, the duplicity and corruption of Greek public accounting was staggering. It was more than some mere book-keeping error, a figure in the wrong column. The concealment of the country’s real budget deficit necessarily involved a vast network of complicity that included the whole Greek political class.

The rest of the eurozone, the European Commission and the European Central Bank had their suspicions but kept schtum. Giving the euro credibility was all. It was, therefore, much in Europe’s interest to cover up for Athens and protect the currency. No wonder then that, once the markets had smoked out Greece, Merkel had to sound particularly schoolmarmish in the Bundestag before last weekend’s summit: “I will stand up for necessary (EU) treaty alterations so that we can fight against undesirable developments better.” Most observers guessed that was code for the power to throw out recalcitrant elements.

This was a new, more self-interested – dare one say nationalistic? – tone from Berlin. Germany’s interests and those of the EU as a whole no longer always coincide, it seems.

Frankfurter Allgemeine Zeitung, perhaps Germany’s most insightful newspaper, did not miss the significance: “The biggest member state, which has for so long silently been the guarantee of the EU, has now openly expressed that it is no longer prepared to pay any price for European unification. The present euro crisis is more than a monetary matter. It changes the political rules of the game in Europe.”

In the cold light of day, though, Lisbon III might be a twinkle in Angela Merkel’s eye, but no one else in Europe has the stomach for another fight between the elites and their electorates. For her, the European interest should not trump the German interest, especially not on a core issue like monetary policy.

But try getting anyone else to see that point of view. Some don’t want to make an example of Greece for fear they could be next in line. If anything, they have been putting the squeeze on Berlin, not Athens. The Italian foreign minister even blurted out that there was a ‘moral duty’ on Germany to intervene.

Many others are terrified that opening up treaty negotiations could be just the excuse Britain needs to claw back some powers from the centre, particularly if there is a change of government there next month. And then what if the changes were so fundamental that they provoked another referendum here in Ireland? Commission president Jose Manuel Barroso was quick to pooh-pooh the notion of revisions: “I do not comment on other’s comments ... What I can tell you is the position of the commission ... currently, excluding a member state from the eurozone is not possible. It’s absurd.” In another interview he was refreshingly candid: “After the hard time we had ratifying the Lisbon Treaty, I don’t want to philosophise on further treaty amendments.”

These are arguments for another day and another summit. Most were just relieved some kind of a plan for Greece was hammered out. After a week of verbal jousting, both the German chancellor and the French president got most of what they wanted in the short-term. Merkel’s priority was to ensure strict compliance with the “no bailout” rule.

The French and the European Central Bank, on the other hand, were desperate to preserve the ECB’s independence. So, the IMF is now involved, lessening the burden on the Germans and tacitly recognising that the single currency was created without a full set of tools to deal with a crisis.

On the other hand, the eurozone will still have to foot two-thirds of Greece’s burden if it comes to it, establishing its pre-eminence.

FRENCH President Nicolas Sarcozy also got inserted into the communiqué, in the French text at least, a clumsy reference to “the economic government of the European Union”, although the two leaders interpret it in diametrically different ways. For Berlin, it means no more cheating; for Paris, greater solidarity with weaker states.

The agreement reached does not exactly solve Greece’s problems, but many in Europe are just glad the storm has passed – for how long, who knows?

Ostensibly, then, the EU stepped away from the brink at the weekend with its rescue plan for Greece, but the likelihood is the remedy will prove little more than a sticking plaster. There is a common myth that the Greeks are exceptional, a bunch of gesticulating taxi-drivers prone to anarchist tendencies. Privately, though, few analysts believe Greece’s budgetary difficulties are entirely an isolated case.

The fact is the rest of the Eurozone finds it hard to compete with German exports but have deprived themselves of the option of devaluing their currencies in response.

It is beginning to dawn on Germany, more than it did in 1998, that Europe might not yet be ready for a common currency. The euro was premature and the problems that have emerged so far might well only get worse.

The failure to act on this analysis only demonstrates that, far from being an inspired economic project, the euro was ultimately a well-intentioned political project designed with precious little regard for the economic facts of life.

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