The End of Old Europe: Why Merkel's Triumph Will Come at a High Price

The euro crisis summit has caused a deep split in the European Union. Britain has been sidelined, and other member states feel steamrolled by Germany and France. The future of the common currency is as uncertain as ever. By SPIEGEL Staff.

French President Nicolas Sarkozy speaks with German Chancellor Angela Merkel during the EU summit in Brussels. Zoom
AP

French President Nicolas Sarkozy speaks with German Chancellor Angela Merkel during the EU summit in Brussels.

Everything was over after half an hour. At that point the summit, which was expected to be a historic one, had not even begun, and yet it was already clear that it would not end well.

German Chancellor Angela Merkel and French President Nicolas Sarkozy had met with British Prime Minister David Cameron at 7:30 p.m. on Thursday evening. Their goal was to determine how far Great Britain would be willing to go to support the German-French plans to save the euro.

Not very far, it would soon become clear.

Cameron demanded extensive exceptions for his country in the event that the European treaties would have to be amended. Most of all, however, he wanted the British financial sector not to be subject to European supervision. Merkel and Sarkozy quickly made it clear to Cameron that that would be unacceptable.

And so the summit, which was intended to be a turning point in the struggle to save the euro, ended up marking a major turning point in the history of the European Union. In the middle of its biggest crisis to date, the European Union is divided and Great Britain has been sidelined, possibly for the long term.

Reluctant Followers

The remaining countries want to follow the 17 members of the euro zone on the path to the sort of fiscal compact Merkel and Sarkozy have outlined. They want it to become a so-called "stability union," with balanced budget provisions to be written into national constitutions and automatic sanctions for deficit offenders. It's the kind of union that Merkel believes is inevitable.

But many countries are only following the Germans' lead with reluctance. The agreement only came about because investors are shunning the bonds of ailing euro-zone countries, and because even the strong countries are facing the possibility of having their creditworthiness downgraded by the rating agencies. But other countries that have long supported a true economic government are asking themselves why the Germans had hesitated for so long.

The summit was intended to prove to the capital markets that the euro-zone countries are prepared to resolutely defend their currency. There was talk of an endgame in the fight to save the euro, while Sarkozy called it Europe's last chance.

By this measure, the results are relatively modest. And yet, from a political standpoint, they are extremely dangerous -- because they signify the end of the old EU.

The core of the new union consists of the 17 euro-zone governments, which have even agreed to meet once a month for the time being. Around this core is a ring of up to nine countries, which intend to introduce the euro in the long term and, to the extent that their parliaments permit them to do so, will also sign up to the euro zone's stricter budgetary rules. The rest, led by Great Britain, are condemned to third-class status.

The Beginning of the End of Britain's EU Membership?

What has emerged is a construct that most closely resembles the ideas of the French. Paris always wanted to keep the group of decision-makers as small as possible and limit the European institutions' powers. This was meant to prevent encroachment on national sovereignty and make the EU's famous Franco-German motor indispensable.

Great Britain is now largely isolated. As a result, it needs to ask itself what role, if any, it still plays in this new Europe.

Merkel, for her part, wants to prevent Britain and the euro zone from drifting further and further apart. She recently told confidants that it is important to give the British the feeling that they are still part of Europe. But the French see it differently, hoping that they will carry more weight in a union that does not include Britain.

Despite all their differences, Germany has always seen the EU as a political partner of the United States. The French, however, want to establish Europe as an independent power bloc in competition with the Americans. One reason this has not happened so far is that the British have fought to maintain the EU's close trans-Atlantic ties. This dispute will now flare up once again.

Optimists, like former German Foreign Minister Joschka Fischer, believe that Great Britain will eventually join the core group, if only out of self-interest. But many in the UK see Cameron's veto as the beginning of the end of Britain's EU membership.

The German government recognizes the problem, but Merkel believes that there is no alternative. "The question is not whether we prefer to solve the debt crisis with the entire EU or within the Euro Group," says a member of German government. "The question is how we can save Europe at all" -- and the euro.

To ensure the survival of the common currency, the euro-zone members, and the other countries that want to join them, plan to negotiate a joint treaty by March that would foresee German-style "debt brakes" for all countries -- which would be enshrined in national constitutions and which would virtually eliminate structural deficits -- as well as (almost) automatic sanctions for deficit offenders.

Legal Doubts

It is completely unclear, however, whether this intergovernmental treaty would be in accordance with EU law. Even Elmar Brok, a member of the European Parliament for Germany's conservative Christian Democratic Union (CDU) and one of Merkel's close associates, wrote a letter to the chancellor warning her against a treaty outside the framework of the Treaty of Lisbon. Such an agreement, Brok argued, would be "illegal."

The legal departments of the European Commission, European Central Bank (ECB) and the European Council, which represents the member states in Brussels, also internally voiced doubts over the construct. At a meeting of the so-called sherpas (the representatives of the participating governments tasked with making preparations for international meetings) on the eve of last week's summit, a heated debate erupted between Merkel's European adviser, Nikolaus Meyer-Landrut, and the head of the legal department at the European Council.

In the preceding weeks, European Council President Herman Van Rompuy had begged the German chancellor to abandon or at least postpone her plans to amend the European treaties. Instead, Van Rompuy made the case for tightening budgetary oversight with the help of a protocol attached to the Lisbon Treaty, thereby avoiding risky referendums in the individual countries. But Merkel brusquely rejected the idea, permanently damaging the relationship between the two politicians. Van Rompuy said he was "very disappointed" by Merkel, on both a human and political level.

European Commission President Josť Manuel Barroso even spoke of "warlike conditions." According to Barroso, Merkel and Sarkozy are trying to impose their views on everyone else, even though they themselves can hardly agree on any issue. The fact that the majority of countries bowed to the German-French duo in the end shows how dependent the EU is on its two biggest financiers. Cypriot President Dimitris Christofias described the dilemma in a nutshell: "We really ought to engineer a revolution against Merkel and Sarkozy, but each of us needs the two of them for something."

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1. A different view
zummerzetboy 12/12/2011
As a newcomer to Spiegel's Forums I may not be doing quite the right thing as I've already tried to make this post but have apparently been unsuccessful. Nevertheless I'll have another go. My first attempt was to click a link that turned out to be a way of sending a letter to the Editor. Here is what I said: Sir, The draft ESM Treaty and the amendments to it proposed as a result of last week's Summit pose more questions than there are answers. As has been said, Fiscal Union proposals, whilst certainly worth debate may be likened to advice given to some-one suffering from a heart attack right now to take more exercise and reduce cholesterol to avoid one in the future. There is now a very high probability the markets will force a default somewhere in the Eurozone system - a country, or a bank - that will bring the entire edifice crashing to the ground before any of these constitutional changes in the Eurozone can be brought into force. That is now doubly so since both the ECB and the Bundesbank have declared the idea of laundering money through the IMF, in the hope it will attract additional funds from Asia and other regions, is not possible because of Germany's constitution and existing Treaty obligations - unless of course Germany defaults on her obligations and changes her constitution. Would either course increase confidence in the markets? Here are some of the unanswered questions and comments on them: How will Merkel get this past the German Constitutional Court and her own population's reluctance to pay for others? How will Sarkozy deal with the French farmers and his rivals in next year's Presidential elections? Beware the rise of Le Pen and extreme French nationalism - even more so than at present. How will Kenny get the Irish to accept their loss of a favourable corporate tax regime? etc etc Where are the checks and balances on the EU Commission's, the ECB's and the ESM's executive powers? All democratic states consider these to be essential to avoid the emergence of a malign Dictatorship. Remember Acton's dictum - "All power corrupts, absolute power corrupts absolutely". Why will the introduction of an Intergovernmental Treaty in the distant future solve a problem that will be manifest much earlier as inter-bank lending freezes and attempts to roll-over national Government debts fail? - the proposed "bail-out" funds that have not yet been committed are insufficient to meet the demand that is due next year. That is why the proposed Treaty terms give the ESM the power to draw upon Member States Exchequers for any amount to be delivered at seven days notice - unless 85% of the Members voting rights are cast to prevent that happening - ie France and Germany can enforce it on other nations but other nations can't enforce it on France or Germany. Is there any wonder that resentment against France and Germany is building throughout Europe? Thank goodness the UK is "Isolated" from these monstrous proposals. These issues were all apparent to Cameron who adopted the line he did, rather than principled opposition to the whole proposal, in the hope this reasonable approach would persuade Merkozy to show enough flexibility to keep the show on the road long enough for more pertinent actions to be agreed. Let us hope the 26 find a different way to solve the immediate problem - shared liability by all for the debts of any - and revise their long term ideas for Fiscal Union to a point where the UK can accept their proposals. The omens are not good so the highest probability must be that the markets force a collapse of the Euro before any of the probably inadequate "rescue mechanisms" come into force. Incidentally, that is why Barrumpy et al are trying to force the pace by bringing forward by one year the introduction of the ESM through a Protocol that is not yet legally in force - and could still be blocked if the UK Parliament refused to ratify the Amendment to the Treaty of Lisbon that authorised it. That would result in the proposed ESM Treaty being downgraded to a legally unenforceable Declaration of Intent, or require the 26 to set up institutions parallel to but separate from those of the European Union. That is in no-one's interest so please think again Germany. A Europhile resident of the UK PS Please notify me by e-mail if you publish this message.
2. Euro crisis
aanna 12/12/2011
Bravo Great Britain!!!. It is the only country which knows how to care for its own interests and has had the courage to defy Germany's striving for the power over Europe.The whole European debt crisis has been blown out of all proportions only to enable Germany to maintain its leading position and rule over the whole Europe. Only stupid leaders from some other countries seem to be unable to see all this in a proper light, or maybe they do and they only pretend to be stupid. I am fairly sure that none of the European countries will collapse in case of the downfall of the common currency. Europe will successfully go on as the union of independent countries with their own single currency having strong mutual economic ties,and that's all what it is to it. And to make it clear, I' m not British.
3. Euro Crisis
aanna 12/12/2011
Bravo Great Britain!!!. It is the only country which knows how to care for its own interests and has had the courage to defy Germany's striving for the power over Europe. The whole European debt crisis has been blown out of all proportions only to enable Germany to maintain its leading position and rule over the whole Europe. Only stupid leaders from some other countries seem to be unable to see all this in a proper light, or maybe they do and they only pretend to be stupid. I am fairly sure that none of the European countries will collapse in case of the downfall of the common currency. Europe will successfully go on as the union of independent countries with their own single currency having strong mutual economic ties, and that's all what it is to it. And to make it clear, I' m not British.
4. Euro stability
harryenglish 12/12/2011
If Merkel & Sarkozy think that by stitching up the UK on FTT, they are some how securing the Euro, they are mistaken. The Euro Issue is not related to the City of London, but to structural flaws brought about by arrogance and incompetance.
5. Questions left unaswered
alfredmifsud 12/13/2011
It is clear that Germany do not want to solve the crisis which is giving them a great economic benefit in lowering their borrowing costs and keeping them super competitive on exports with a weakening Euro exchange rate. The Germans just want to do enough to keep the Euro system together without actually reforming it as it needs to be reformed. Keeping distress countries at the edge, pull them in just enough to prevent them tipping over, but never pull them back enough to feel secure and start challenging German diktats in Europe. The French are just being used to give a milder tone to German domination and to avoid memories of German European conquers of the 20th century. It is clear that there is no longevity for a monetary union with desparate economies. If the Germans really want to save the Euro they should seriously consider leaving it and reverting back to their Deutsche Mark to allow the Euro to fall to a level where countries in distress regain competitiveness. Forcing fiscal union and similar sausage machine arrangements before addressing the present inbuilt pressures and disparaties serves only to expose the political hegemony that is the true objective of German leaders. Germany has to pay for abusing other countries inside the Euro system. The UK will not be the only or last country to opt out of the new agreement. When it comes to details other countries, including some Euro members will also get cold feet. Germany has to pay either by leaving the Euro or by accepting that fiscal union is only possible if they accept joint and several liability for all Euro countries debts through launch of Eurobonds.
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