High Stakes ahead of Crunch Summit: Euro Crisis Threatens European Way of Life
Part 2: A Battle for Dominance in Europe
The conflict between the two leaders extends well beyond questions of policy. Hollande waged an election campaign against German dominance in Europe. As a result, he became the voice of, in particular, the Southern European countries, which are sharply opposed to German austerity policies. It's a role Hollande seems to enjoy.
"Our impression that Hollande would find his way back to being more willing to compromise after the elections was wrong," says a senior government official in Berlin. "Now he apparently wants to demonstrate that France is the leading power in Europe."
The participants in the G-20 summit urged their European counterparts to set aside their differences. World Bank President Robert Zoellick urged the Europeans to make up their minds, and not to "push it to the brink."
The assembled world leaders called upon Merkel, Hollande and the others to finally present a solution at the EU summit in Brussels at the end of the week. They have "high expectations" for the expected outcome of the summit, said South Korean President Lee Myung-bak.
The proposals that the heads of four EU institutions -- European Council President Herman Van Rompuy, Euro Group President Jean-Claude Juncker, European Commission President José Manuel Barroso and European Central Bank President Mario Draghi -- have sent to the 27 governments are far-reaching. They propose a comprehensive reorganization of European economic policy in four areas:
- Banking union: In a first step, national deposit insurance funds could be combined to form a European fund. This fund would later be augmented with a Europe-wide bank charge. In the future, the money could also be used to help banks in trouble. If the four leaders have their way, a new watchdog agency would not just regulate the major banks, but all financial institutions. The new agency would be located at the ECB.
- Euro bailout fund: The European Stability Mechanism (ESM) is to be given the power to finance ailing banks directly. This would eliminate the need for an individual country to apply for bailout funds and fulfill additional requirements.
- Jointly issued debt: To reduce government debt, the authors recommend a debt redemption fund to pay off pre-existing debt, as proposed by the German Council of Economic Experts. In the long term, however, the four EU officials want a different model, in which no country in the euro zone would be allowed to take on new debt without the consent of the other countries. They also propose a European debt agency.
- Fiscal union: The proposal calls for the introduction of a financial transaction tax and the uniform assessment of corporate tax.
Even through Van Rompuy and his co-authors carefully avoid potential divisive terms like "sovereignty transfer" and "euro bonds," the plans stand little chance of succeeding. The Germans are strictly opposed to assuming liability for weaker countries unless it is tied to collective political control.
For this reason, Berlin will do everything it can to weaken the report by the EU summit at the end of the week. Because there is already little hope that concrete decisions will be reached, the Brussels meeting can already be regarded as a failure. The expectations are so great that they will certainly not be met.
The Europeans have decades of experience in maneuvering through crises with mountains of paper and by constantly forming task forces. The quartet of presidents is also prepared for this approach. The four men assume that European leaders will initially extend their mandate. Another interim report is planned for the fall, and by December a reform of the monetary union is expected to exist on paper -- perhaps.
Whether the euro will still exist in its current form by then is questionable. Greece, at any rate, might already have left the common currency.
Most of the 16 euro finance ministers who met in Luxembourg last Thursday had no sympathy for Athens, saying that apparently the Greeks still hadn't grasped the gravity of the situation.
Ironically, the new Greek finance minister, Vasilios Rapanos, did not attend the meeting, although he did have an excuse. Rapanos -- who has since resigned -- had his staff inform the other ministers that he needed more time to familiarize himself with the complicated subject matter.
Translated from the German by Christopher Sultan
- Part 1: Euro Crisis Threatens European Way of Life
- Part 2: A Battle for Dominance in Europe
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