20 February 2012

Paul N Goldschmidt: Ratification of the European Stabilisation Mechanism - A totally incomprehensible process for the citizen!

France should be the first country to adopt legislation covering the creation of the ESM. It will, however, only become operational after ratification of the Intergovernmental Treaty (EU 25) on budget discipline, which should be signed early next March.

Indeed, access to the ESM is subject to the ratification by the applicant of the Treaty which will only enter into force after its adoption by at least 12 of the 17 EMU Member States. This can only be envisaged for the end of the year at the earliest, if its foundations (ESM and Treaty) were not contested by a new French President or were not ratified by one of its main signatories (Germany).

If markets are welcoming (maybe somewhat hastily) an agreement on the disbursement of the new aid package to Greece, which should avoid an imminent disorderly default, there are a growing number of factors that are being brushed aside: the level of acceptance of the “voluntary” debt exchange offer by the private sector, the contribution of the ECB to the process, the political and popular acceptance of the new austerity and external control measures in Greece, the commitments of the future Government after the elections next April, the recapitalisation of Greek banks. Any one of these factors can derail the entire bailout procedure and result in cross border contagion that could spell the collapse of EMU.

Furthermore, the ratification of the Treaty on budgetary discipline will also run simultaneously with the adoption of the latest Commission proposals which reinforce significantly its powers to intervene in the budgetary processes of the 27 EU Members (the “two pack”). The European Parliament is bound to use this opportunity to compensate for its marginal involvement in the introduction of the ESM and the intergovernmental Treaty. Under these conditions, there is ample opportunity to derail the adoption of the delicate complex system of both an “integrated economic and budgetary” policy alongside a “crisis management” mechanism that are both ambitious and indispensable. Their implementation within a reasonable timescale compatible with the requirements of the crisis appear largely compromised from the outset, as long as the dogmatic positions and (apparent) contradictory interests between Northern and Southern Members states prevail. If an economic recovery fails to materialise, markets will once again focus on the obvious weaknesses and structural flaws in the existing system.

The polemic surrounding the ratification of the ESM has, naturally, invited itself into the French presidential election campaign. The main candidates – who have both purported to put “France” at the centre of the political debate – should be encouraged to focus on “Europe” insofar as they both recognise that it is only within a “Strong Europe” that a “Strong France” and its partners can hope to overcome the crisis.

Within this context, the divergences between the socialist party and the UMP on the vote on the ESM only add to the uncertainty by creating doubts on the attitude of France in the aftermath of the election. On a purely tactical level, this situation is rather more supportive of the outgoing President because, perversely, market reaction is likely to be more negative in the case of a likely socialist victory and its threat of renegotiating the hard-fought integration process. As we have already mentioned, there are already too many reasons for the whole process to unwind.

Finally, it is necessary, once again, to underline the complexity of the “financial” agreements which are the result of perpetual laborious compromises and which have made the European project totally incomprehensible for the average citizen. A policy consisting in pushing into the future the necessary structural reforms concerning the institutional European framework is a godsend for populists, and encourages even those that purport to be European-minded to adopt the clothes of nationalism.

“Outside of Europe, no hope of salvation!”: that is the plain truth that the presidential candidates – purportedly concerned with the wellbeing of the French – should have the courage to present to voters as being the only framework within which the country can hope – admittedly with necessary efforts and sacrifices – to restore its economy, its finances and its educational system thereby ensuring the future “aura” to which France is so attached.  

Paul N Goldschmidt, Director, European Commission (ret.); Member of the Advisory Board of the Thomas More Institute

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© Paul Goldschmidt