Will the European Union survive the weekend? President Nicolas Sarkozy seems concerned that it won’t and, if it doesn’t, it will be terrible news for France. The FT reports on France’s growing angst:
As Moody’s, the US rating agency, warned that France could see its credit outlook cut as a result of the growing sovereign debt emergency, Mr Sarkozy alluded to his country’s vulnerability were the eurozone to fall apart. “France on its own cannot cope.”
Prime minister François Fillon echoed the need for a rapid breakthrough on Sunday: “If we don’t succeed, Europe will be at great risk.”
The European Commission also pushed back against Berlin’s warning that a solution to the eurozone crisis might not be reached this weekend, with a spokesman saying non-EU finance ministers at the G20 had made clear last weekend that “we are expected to provide a comprehensive answer as soon as possible”.
France may not be able to cope on its own, but there aren’t many countries able or willing to help it. Moody’s just cut Spain’s debt rating and Standard and Poor’s did the same to 24 Italian banks. France has a very simple plan that will solve all its problems: Germany must pour money into a European fund that will bail France out while accepting more French influence over future German financial decisions.
It is simple and elegant, but for some reason the Germans aren’t as enthusiastic about the French.
Viewed from Paris, the European Union has always been an effective way for France to increase its global influence by marginalizing Britain and domesticating Germany. Previously, Germany swallowed the bitter pills that France handed to it. Trading the mighty D-Mark for reunification was only one of them. But this time the Germans are balking:
Officials from Ms. Merkel’s Christian Democratic Union said she told allied lawmakers Tuesday afternoon that talks at the EU level were advancing only “millimetre by millimetre”. A day earlier, Ms. Merkel’s spokesman had warned already that “dreams” that “everything will be solved and everything will be over on Monday” were misplaced.
A deep and understandable Teutonic fear of being played for a patsy by the deft and clever French is causing the German establishment to go very slowly on this one. They want to make sure they understand the fine print — and fear both the breakdown of the EU if they are too tough, and a collapse in political support at home if they are seen as too soft.
Sarkozy is playing the German guilt and fear card for all it is worth. If you fail to adopt the French plan for converting the EFSF to a bank (that can bail out France), he tells them, you are destroying Europe and condemning future generations to conflict and war.
This doesn’t work as well as it once did; the success of German unification and Germany’s economic growth contrasted with French economic near-crisis has solidified a new kind of German self confidence. When it comes to economics, the Germans are confident that they know better than the Latins and the Greeks, and they are much harder to budge on economic policy issues than they used to be. Germans are in any case allergic to President Sarkozy’s hyperactive negotiating style. The faster he tries to bounce them into some grand scheme, the more their go-slow instincts kick in.
Sarkozy wants to turn global investor nervousness into a negotiating tool. “The markets will melt down worldwide if you don’t give me what I want by Sunday,” appears to be his latest approach. This may not be as powerful a weapon as he hopes. At this point the Germans have seen markets collapse and recover many times during what is slowly turning from a crisis into a historical period. A solution cobbled together to meet a self-imposed deadline may buy a few days peace on the financial markets, but unless the plan is sound and sensible, investors will quickly pick it apart and we will soon be back to yet another hysterical crisis and yet another set of French demands, Germans reason.
Take your time, get it right — and don’t get sucked into any long term commitments until you are absolutely sure you are not being entangled in some devious French ploy.
Screaming at the Germans is usually not the best way to reach an agreement. Germany is usually willing to defer to France on questions of prestige and decor. But it is increasingly less willing to give ground on substance — especially when it is convinced that France’s inflationary, politicizing instincts are the kind of Latin economic ideas that caused the European crisis in the first place. If a viable agreement is to be reached in a reasonable time frame (and the armies of investment geniuses and insider traders working to keep the vast Mead trusts and hidden investment accounts in the black are as weary as everyone else of these dizzying financial market swoops and swoons), then the French should make up their minds to accept a much more Germanic policy framework and seek compensation at the level of prestige and appointments.
That would be the easiest way forward diplomatically, but it is a road the French may not be able to take. A disciplined Teutonic economic order does not suit the French way of life; orderly, inflation-fighting Prussian capitalism is only slightly less horrible than the Anglo-Saxon law of the jungle from a French point of view. At the end of the day, France may simply be incapable of adjusting to the rigors of a German economic style; if so, the question of the nature of the monetary union turns into an irreconcilable contest between two fundamentally different approaches to political economy. Either France (and the rest of the Latins and Greeks) must live under German rules, or the Germans (and the other thrifty and orderly northern countries) must become more like Zorba the Greek.
The inability to square this circle is the real reason it is taking Europe so long to figure out how to deal with the euro crisis. Europe is having an identity crisis — and this is not something that can be settled in a weekend.
Markets may just have to take a back seat. Identity is more important than money, and Europe needs to decide what it is before it can reasonably be expected to decide what to do.