Chancellor Angela Merkel, Foreign Minister Frank-Walter Steinmeier and Finance Minister Peer Steinbrück looked immensely pleased with themselves at the Friday press conference that closed this week's European Union summit in Brussels. It's remarkable how far the world has come in two years, Steinbrück said. Much of the agenda promoted in vain by Germany in early 2007 -- when Berlin held the rotating presidency of the G-8 -- has now become consensus, he pointed out smugly.
There is agreement with the "Anglo-American region" that hedge funds, private equity firms and tax havens should be closely monitored, he said.
That's not completely accurate: When the heads of the world's leading economies meet at the G-20 summit in London at the beginning of April, there are bound to be some differences of opinion. But Steinbrück's elation was not entirely unjustified. The closing document from the EU meeting reads largely like a German wish list.
The European Council makes its priorities clear in the 22-page document, especially when it comes to the financial crisis. Much of it is dedicated to the Europeans' demand for increased regulation of the financial markets, with passages devoted to economic stimulus looking truncated by comparison. "Considerable fiscal stimulus," worth €400 billion, has already been committed to the EU's overall economy, the Council says -- and placing this point high in the document seems intended to quell criticism from the US that Europe has been too tentative. Merkel once again emphasized that Europe has "more than fulfilled" its aims.
But the EU has avoided pledging any further stimulus measures. Instead, the document asks the bloc's 27 member states to return "to positions consistent with sustainable public finances as soon as possible." That long-time obsession of Germany's, the Growth and Stability Pact -- which requires EU states to ensure that public debt does not exceed 3 percent of gross domestic product -- is to remain the standard for European economies.
The document's appendix is particularly detailed, outlining as it does the "agreed language with a view to the G-20 summit in London." Those stimulus packages that have already been passed should be quickly implemented, the text says. But more important is a functioning financial system. Resuscitating that system is the clear priority.
The EU will take an unusually hard line on regulating financial markets. Any participant who might represent a systemic threat -- "without exception and without regard for home nation" -- would have to be monitored, according to the EU's recommendation. This would apply to private capital firms as well as hedge funds, private equity companies and alternative investment vehicles. Tax evasion will be fought "forcefully." Offshore businesses will be placed on a blacklist and a "toolbox with sanctions" will be developed to pursue countries that serve as tax havens.
Taming 'Wild Growth'
The EU representatives will travel to London bearing what might be called German priorities. "We have the chance now to tame wild growth on the financial markets," said Foreign Minister Steinmeier. "We should not let it go by."
When a Swiss journalist asked whether his country would land on the OECD's blacklist, the three politicians at the podium couldn't stifle a grin. The list has already wielded a certain influence, the chancellor said. Steinbrück said every country had its own fate in its hands, but he didn't just want to see promises to live up to OECD standards in the future -- he wanted to see concrete action. Germany, in particular, was serious about the tax-haven problem.
Merkel also raised the pressure. The G-20 summit would have to aim for "qualitative progress," she said. EU nations agree that regulation of the finance markets would have to be brought "very much to the top of the agenda." Steinmeier added that the EU's decisiveness on this matter could not be understated.
But is Brown on Board?
The German government is arguing for speed because it fears enthusiasm for reform might ebb in Great Britain and the United States. At the EU summit, British Prime Minister Gordon Brown was already signalling skepticism about the planned new financial auditing. But Merkel played these reports down. It's over-ambitious, she said, to set up a financial oversight body at a European level overnight. She wants to see more realism among her colleagues.
Before the G-20 conference, the EU nations want to agree on who will pay which portions of a new €75 billion contribution to the International Monetary Fund. In spite of their stated concern for their own budgets, Europeans will have to dig deep into their own pockets to pay their share of a new initiative to double the IMF's total credit line (to a total of €500 billion). British Prime Minister Brown has said the EU itself could take advantage of the new credit. The danger of bankruptcy in developing states, he said, was a contagious disease to which Europe might not be immune.
The EU's crisis fund is also expected to be doubled to €50 billion and will primarily be made available to Eastern European countries especially hard hit by the credit crunch and economic downturn. Initially, the German government opposed the move out of fear it might create alarm on the markets. In the end, though, Berlin yielded at the behest of the Eastern Europeans. On Friday, Merkel emphasized that it was intended purely as a preventative measure.
Steinbrück also provided a guarantee for the euro zone member states. He said no country that is part of Europe's common currency area is currently threatened with payment difficulties -- and even were this were to happen, the euro zone would still be "capable of functioning." In other words, stable countries like Germany would jump to the support of countries like Ireland if it needed it.
Luxembourg Prime Minister Jean-Claude Juncker warned of the prospect of a "social crisis" with respect to growing joblessness that has sparked mass protests in France. Reflecting that in its closing statement, the European Council described the rapid rise in unemployment as a "cause of great concern". But Merkel brushed off Juncker's remarks, warning that Europe's leaders shouldn't compete to paint the gloomiest picture.
"This isn't the first time there's been a strike in France," she said.