Has there ever been a time in EU history where a treaty is being negotiated that a) virtually nobody wants b) does not solve the problem at hand c) whose contents are already, or could in future, be part of general EU law and d) deteriorates in quality the more it is negotiated?
Some of these points applied to other treaty-making rounds. But not all of them at once.
The whole point of this treaty exercise – which is using an inconvenient intergovernmental track because of the UK – is political.
Germany needs some sort of pact that makes it look like it will be almost impossible for member states to be big and careless spenders in the future. A fiscal straitjacket. The document could then be served up when Germans are feeling unenthusiastic about mutualising eurozone debt, or greater involvement of the European Central Bank, for example.
The problem is most of what is in the slim draft (now 16 articles) could simply be done using the normal EU law-making procedures.
The six-pack of economic governance legislation – in place since mid-December – already represents a ground-breaking shift in Brussels’ relations with member states when it comes to budget matters.
New legislation, announced in November, consolidates these budgetary powers still further, giving the commission even greater discretionary powers over national spending.
So what is left? Not much but still two things to which Berlin remains very attached – a constitutional debt brake and automatic sanctions for excessive deficit countries. These cannot be done via the current treaties.
But the “fiscal compact” is having difficulty delivering on just these two points. Language requiring a debt brake to be written into national constitutions has been softened when compared to earlier versions, to head off any referendums.
Meanwhile the very (German-esque) essence of the treaty – namely language getting fiscal miscreants to cut their deficits – has also been softened.
Under the latest draft, member states may ignore the tough budget deficit limits in case of an “unusual event” or a “severe economic downturn.” Echoes of the not very forceful Stability and Growth Pact. Language allowing the European Commission to take member states to court for not implementing the debt brake has also gone. Instead member states should take one another to court. An unlikely proposition.
Mario Draghi, head of the European Central Bank, and inventor of term fiscal compact had this to say of it on Thursday:
“The wording of such rules needs to be unambiguous and effective.” Hardly a ringing endorsement.
MEPs say the latest draft does not reflect the actual discussions. Technically what the parliament thinks does not matter. But if it were to ultimately reject the outcome, it would make it harder to get the document through national parliaments.
The European Commission will not accept any conflict with EU treaties or establishment of parallel structures. France, quite happy to have parallel structures, does not want the EU institutions having too many powers
Meanwhile, no one wants to set off a national referendum if at all possible.
It is hard to imagine what will emerge by end of January when EU leaders are supposed to give the nod to the first draft.
#1 by Denis Cooper on January 12, 2012 - 6:14 pm
“… two things to which Berlin remains very attached – a constitutional debt brake … ”
But apparently even while Germany presses for other countries to instal a constitutional debt brake, the German Finance Minister is attempting to circumvent the German debt brake:
http://www.openeurope.org.uk/media-centre/summary.aspx?id=3604
“German Finance Minister looking at ways to circumvent constitutional debt brake
Tuesday, January 10, 2012
Bild reports that German Finance Minister Wolfgang Schaüble is looking at ways to circumvent Germany’s constitutionally embedded debt brake, most likely involving a vote in the German Bundestag. This would offer the government a degree of flexibility in the case of an emergency, such as a new wave of bank bailouts. The proposal has been criticised by CDU MP and budgetary expert Norbert Brackmann, who said: “This could result in the creation of more debt than is permitted under the debt-brake. This will lead to a new bubble, which has already proved fatal. It is unacceptable.” “
#2 by Victor on January 12, 2012 - 7:28 pm
The most important part about the new treaty is requiring balanced budgets in all countries (0.5% GDP deficits, vs the current 3.0%).
This requires changes in primary law (the treaties, or the protocol on excessive deficit).
Giving the Commission the power to bring infringement proceedings would probably go against the treaties. (The alternative would be to create a new temporary institution, like was done for Schengen.)
So far the new treaty drafting seems to be progressing rather quickly. After all, the wheel doesn’t have to be invented, there is already the precedent of Schengen, which was only gradually transferred over to the EU treaties and institutions.
And it would also seem that every country, except for the UK, is getting what it wants:
1) Germany gets balanced budgets;
2) France (along with the others) gets mutualization of debt;
3) Italy gets a watered down debt criterion;
4) Ireland gets not to hold a referendum;
5) Denmark gets not to amend its constitution to enshrine balanced budgets;
6) the non-Eurozone countries get to participate in the new treaty while not being bound by it.
The European Parliament may huff, but in the end it will have to recognize this is the price for Eurobonds.
The Commission will continue to present proposals for the regulation of the financial industry.
The European Central Bank maintains its de jure autonomy, while de facto complying with government wishes.
Banks get credit for free.
The real debate right now seems to be on the two proposals for a financial transaction tax and a common consolidated corporate tax base.
Sarkozy wants them because he has elections. But the issue will not be solved in time, yet in the future it will probably come up with enhanced cooperation not at the eurozone level (where there is no unanimity) but at the whole Union.
This will prove how a multispeed EU has always been a reality and will continue to be so even more on issue by issue (patents, gay rights, Schengen, Euro, etc). Fearmongering about the desintegration of the EU is based on a distortion of its development.
On the background are several additional issues clouding all of the countries attitudes nowadays: bank capital rules (CRD-IV), the multiannual budget (MFF), European and non-european tax havens (including the taxation savings directive), plus the working time and posted workers directives.
The only ones who seem lost in these debates are the non-German unemployed.
In the end and sooner rather than later, the current generation of European “statesmen” will be made to pay for their mismanagement of this crisis:
a) the Germans will not countenance Merkel’s perceived profligacy, while the next steps in European integration will create too much strain on the conservative-liberal coalition;
b) the French will not be happy to have their unemployment rise and economy go down while Germany thrives;
c) the Italians and Portuguese will not be happy that their closed economies are made to reform;
d) the imposition of austerity in Spain through centralization will generate a backlash, specially among Catalans;
e) the bailed out (specially the Greek) will tire of austerity;
f) the British (and specially the coalition government) will have to deal with the contradiction of being eurosceptic while wanting to shape Europe;
g) the richest European countries (specially the Dutch, Austrians and Scandinavians) will keep fretting about migration;
h) the Eastern Europeans will be disappointed with the final budget negotiations and with having to raise their retirement ages even though their life expectancy is shorter, their working populations are declining (in part due to continued migration to Western Europe) and their budgets are relatively in good shape.
Hopefully the election of a socialist President in France will signal a wake up call to Europe’s leaders that this crisis isn’t only about banks and deficits. Sarkozy has always had the clearest ideas among the current batch of leaders, but he has been on the short end of the stick in his political marriage to Merkel.
The emergence of respected economist Monti as a player in the European Council will hopefully help rebalance its debates, pushing for both reform and real solidarity. With a socialist and then a communist as presidents of the Council maybe social Europe can get a hearing.
In any case 2012 will be more politically interesting than this past year with elections and new debates within national governments. Reforms may be necesarry in Europe, but Merkel’s attitude is poisoning the European Union’s legitimacy.
#3 by theyenguy on January 12, 2012 - 11:44 pm
Yes indeed, it is hard to imagine what will emerge by end of January when EU leaders are supposed to give the nod to the first draft.
Yet one thing is very clear fiat money is dying as a result of banking insolvency and sovereign insolvency in the Eurozone; with the result being failure of global growth.
Banking insolvency in the European Financials, EUFN, especially the National Bank of Greece, NBG, means ongoing currency failure globally, persistent economic contraction, and continued diminished world trade.
Sovereign insolvency will spread from the EU periphery to the EU core. The loss of debt sovereignty will be a catalyst for the formation of a European Super State based upon unified fiscal rules. Bank failures and EU Treasury auction failures, will be the defining issues of the year. These will cause leaders to meet in summits, waive national sovereignty, establish a unified federal authority, mandate a European fiscal union, and establish either the ECB or the Bundesbank, that is Buba, as the Euro’s Bank.
Life in Europe will be characterized as a totalitarian collective. Totalitarian collectivism is the EU’s future. European Socialism will die in 2012. Diktat will provide seigniorage to replace the seigniorage of treasury bonds. Diktat will become a currency, that is a payment used in the exchange of goods or services.
Gary of Between relates that Welt reports Europe’s interbank market is frozen and the continent’s banks are only lending to each other through the ECB due to a lack of confidence within the financial industry, World Bank President Robert Zoellick was quoted as saying. If European banks don’t lend to each other, how can others in the U.S. or in China be expected to do it, Zoellick said.
The seigniorage of fiat money is failing, and the seigniorage of diktat is rising in its place, as is seen in the rise of power of the EU ECB IMF Troika to appoint technocratic government in Greece and Italy. Diktat is rising as a currency to dominate mankind. Libertarian’s desire for Freedom and Free Enterprise are a mirage on the Neoauthoritarian Desert of the Real. And Choice is an epitaph on Neoliberalism’s tombstone.
Bible prophecy of Revelation 13:3-4 foretells that a world wide credit bust and global financial collapse is coming, and that regional global governance will be established. This was foretold long ago when the prophet Daniel explained the Statue of the Progression of Empires to King Nebuchadnezzar in Daniel 2:31-33.
For much, much more on bible prophecy, please consider reading here http://tinyurl.com/88baae7
#4 by Leo Axt on January 13, 2012 - 3:13 am
Exactly what i’d been saying. Germany wants to have something to show voters they got something tough in return for their investment in Europe (which will sooner or later have to come in the form of eurobonds, ECB activity and pan-european growth stimulu or at least the option to stop austerity measures).
I think it unlikely German politicians would drop the Euro and thus the EU, unregardless of how unaware the German electorate is of its benefits. While Merkel’s silence on precisely this German ignorance, where she should really tell people what they stand to gain (or lose), this kind of anti-democratic and thus dangerous behaviour, which puts into doubt the very legitimacy of the final solution, will hopefully not negatively impact the emergence of a solution at all.
#5 by Marcel on January 13, 2012 - 9:44 pm
@4
The Euro has no benefits for the lower middle class and the lower incomes. Only the rich, bankers and politicians ever profited.
And if anything is antidemocratic, its the Eurosoviet Union with its unelected undemocratic Politburo wanting to dictate to member states what they should do with their national budgets. Referendums now because we don’t want a Eurosoviet Union.
#6 by GWI on January 14, 2012 - 3:48 pm
Denis: If Wolfgang Schaüble is looking for a way to circumvent the debt-brake law, he has more economic sense than you give him credit for. As I (and many others) have argued repeatedly, the law is a disaster. First, it is deflationary and will produce decades of low growth. Secondly and most seriously, it addresses the symptoms and not the causes.
#7 by Al on January 14, 2012 - 9:20 pm
That would be every treaty related to the European Union.
#8 by Marcel on January 15, 2012 - 4:59 pm
@6
Perpetual economic growth isn’t possible anyhow, we should stop seeing it as some sort of holy grail. Oh, and the financial economic system of the western world itself is unsustainable. Minor adjustments won’t achieve anything. The debt based system is a disaster, we only see it now because all the bubbles have popped, only for politicians now frantically trying to reflate these bubbles.
Real estate still hasn’t been marked to market, if you factor out government overspending there isn’t any ‘growth’ at all. Our system requires perpetual population growth and perpetual debt growth to continue existing. Oh, and do you think its possible for the whole world to ‘enjoy’ our level of prosperity? I think not. The more integration there is into the wealth-destroying Euro, the more the ‘richer’ (*cough* debts *cough*) will have to give up. The best part about this is that it cannot be stopped, as Europe can no longer exploit colonies to keep them poor so we can be rich. And the Eurosoviet Union will be shown up for what it really is: an elitist project designed to eliminate democracy, concentrate wealth with the rich and reduce the rest of us to debt-serfdom.
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#10 by halcion on February 13, 2012 - 4:51 am
Denis: If Wolfgang Schaüble is looking for a way to circumvent the debt-brake law, he has more economic sense than you give him credit for.
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