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Since little was expected, it would be useless to be too disappointed. The press conference of the leaders of the eurozone’s four major economies does not contain the slightest hint of a bold new initiative coming out of the forthcoming European Summit, capable of meeting the expectations of citizens and markets alike.
The superficial unanimity forged around a “growth initiative”, equal to 1 per cent of the EU’s GDP (€130 billion), should allow President Hollande to boast that “his agenda” has carried the day, giving him the necessary alibi to ensure ratification of the budgetary discipline treaty by France. It should, however, be perfectly clear that this is nothing else than the latest version of existing proposals concerning the increase of the EIB’s loan capacity, the introduction of “Project Bonds and the redeployment of uncommitted structural funds. These measures that have been already subject to a broad consensus and, however welcome, are clearly insufficient to address the crisis at hand. In essence lots of well-meaning words with very little new substance.
Another point of verbal consensus: “this growth initiative should in no way hinder efforts to restore budgetary equilibrium”. A wonderful sentence aimed at reassuring markets! While for Italy and Spain this may not necessarily include new austerity measures, significant efforts having already been undertaken, one is still waiting for France to detail the measures it will take to meet its European commitments. One suspects that the President is trying to avoid the sacrifices to be imposed on his fellow citizens, under the pretence that by refusing austerity and structural change, the country is endorsing fully its share of responsibilities in fostering the common growth agenda!
Far more worrisome, however, is the frontal opposition between France and Germany on measures to achieve deeper EU (or EMU) integration. Its necessity, which both leaders purport to support, is in line with a noticeable increase in the number of respected personalities who consider “federalism” as the sine qua non condition for the long-term survival of the euro; markets are therefore expecting anxiously a “road map” as a sign of the political will that will ultimately lead to its implementation.
For the Chancellor, the adoption of the treaty on budget discipline (including the golden rule) together with the pooling of mandatory decision-making and control processes in budgetary matters as well as oversight of sovereign debt levels are “non-negotiable” preconditions for the solidarity implied in measures such as a EU wide bank deposit guarantee scheme (a key element of a banking union) or the mutualisation of sovereign debt issuance (eurobonds). For the President, on the other hand, “solidarity”, the meaning of which he stubbornly refuses to expand upon, is the precondition – equally “non-negotiable” – for any further transfer of sovereignty. In essence, these irreconcilable approaches create a paralysing stalemate that can only foster further market volatility.
The consolation prize is, apparently, the implementation by nine Member States of a “financial transaction tax” under the EU “reinforced cooperation” procedure. Notwithstanding that its modalities remain vague, in particular concerning its extraterritorial scope, and that there is no agreement on the use of proceeds, the wrangling surrounding its adoption will underscore once again the lack of cohesion between EU Members, and will exacerbate further the opposition between the UK and the continent.
If on the evening of June 29th all that the European Council has to offer is a rehashed version of the Rome declarations, then the disappointment will be great and hopes for an exit of the crisis once more pushed inexorably forward until kingdom come!
Paul N Goldschmidt, Director, European Commission (ret.); Member of the Advisory Board of the Thomas More Institute