On the one hand, as we noted in an earlier post, EU president Herman Van Rompuy has made no bones about his view that the EU needs to have more clout in economic affairs. Per the Telegraph:
Herman Van Rompuy, the EU’s new president, has submitted a text calling for the creation of an “economic government” that shifts responsibility for economic planning from national authorities to the “EU level”
But the Independent has a story up, “EU President’s secret bid for economic power,” that makes this effort sound more like a land grab:
The new President of the European Council, Herman Van Rompuy, is using the financial crisis sweeping the eurozone to launch an audacious grab for power over national budgets, leaked documents reveal.
The Independent has seen a secret annexe to the letter being sent by Mr Van Rompuy to European Union heads of government inviting them to the summit to be held tomorrow in Brussels. In an early and muscular assertion of authority over national governments and over the EU Commission, the Van Rompuy note states: “Members of the European Council are responsible for the economic strategy in their government. They should do the same at EU level. Whether it is called co-ordination of policies or economic government, only the European Council is capable of delivering and sustaining a common European strategy for more growth and more jobs.”
Mr Van Rompuy states that “the crisis has revealed our weaknesses”, adding: “Budgetary plans, structural reform programmes and climate change reporting should be presented simultaneously to the Commission [his italics]. This will provide a comprehensive overview.”
How one reads this could easily devolve into those “one man’s terrorist is another man’s freedom fighter” debates. On the one hand, the pragmatists assert that there is a great deal to be gained by having the EU become more cohesive and successful, and national sovereignity will inevitably have to be compromised. On the other, this very move has been deferred as long as humanely possible precisely because it was politically unpalatable. Now to have it take place, with the first act in some member states being an austerity regime….this is not a great way to make the medicine go down. And recall the after-effect of IMF austerity regimes in Asia after its 1997 crisis. It wasn’t just the “client” states that resolved never never to have anything to do with the IMF, but even mere bystanders like China came to the same conclusion, that it was necessary to build up big foreign exchange reserved to avoid what befell Indonesia and Thailand. Admittedly, an austerity regime for Greece (and the other members of “Club Med”) may not be as draconian, but Greece is also in much closer proximity to countries that will not be put on a short leash, which could stir even more resentment.
And of course, the fact that this story was leaked, with the hope of making waves, also says there will be a great deal of tough discussion and (hopefully) compromise before any deal can be reached.
More from the Independent:
An EU source explained: “It has become clear to everyone that this economic crisis can’t be solved by individual member states, such as Germany helping out Greece. What we need is the same kind of mechanism that we have now imposed on Greece in order to monitor and survey eurozone countries. So the idea is to put all European economies under surveillance. You can expect some important decisions to be taken this week.”
In a highly unusual move, the president of the European Central Bank, Jean-Claude Trichet, has broken off from a meeting of central bank governors in Sydney to return to Europe…
The concern being felt in the highest circles of the EU about the “contagion” sweeping through Greece, Spain and Portugal is also clearly displayed in Mr Van Rompuy’s confidential note: “The crisis has revealed our weaknesses. Our structural growth rate is too low to create new jobs and to sustain our social systems.”
Referring to the fact that the EU has no way to resolve a budgetary crisis that affects other members states, Mr Van Rompuy goes on: “Recent developments in the euro area highlight the urgent need to strengthen our economic governance. In our intertwined economies, our reforms must be co-ordinated to maximise their effect.”…
The financial crisis comes as the EU’s three presidents jockey for position. Mr Van Rompuy is permanent President of the European Council (the job once thought tailor-made for Tony Blair), while the Spanish premier, José Zapatero, is the President of the Council of the European Union and José Manuel Barroso is President of the European Commission. President Barack Obama recently snubbed a proposed spring EU-US summit out of frustration at having to deal with the confusing troika.
The summit will be held away from the usual redoubts of the Euro bureaucracy, in Brussels’ Solvay library. “Van Rompuy wanted to create a far more intimate atmosphere without an army of advisers,” a source said. “There are a lot of tensions between member states right now, which he is why he decided to get them to talk in an open, friendly setting, starting with aperitifs. The idea is to have a proper brainstorming session and hear everyone’s thoughts.”
Yves here. This is an important juncture. Even though the subtext is that there needs to be some sort of EU deal for Greece and its Club Med confreres, it isn’t just getting to a deal, but the quality of the arrangement that matters for the long term.
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Mr. Van Rompuy has a long history of defusing potentially explosive situations between distrusting stakeholders. Whether or not a deal will be done and what quality the deal will be obviously depends on the partipants (he’s no miracle man), but a trusting environment can do wonders. Probably the best thing about this news is that at least someone is reading the signs and drawing conclusions.
The article is pretty good but the headline is way off: “EU President’s secret bid for economic power”
Funny how Van Rompuy who was profoundly mocked globally for weeks for being unknown, invisible and asked to run a new Institution rich on political impotence now is 1) called the “EU President” and 2) is described as potentially being continental Europe’s Darth Vader.
There is not much of a “secret” either, is there? It seems that Van Rompuy circulated the documents for the meeting to the 27 Member States with the UK Government not liking what it saw, subsequently leaking the text the the British media.
Van Rompuy is Belgian so his speciality is inevitably never ending discussions at which level (local, regional or federal) competence should rest. The Belgians are by necessity champions of compromise, often messy ones. So there will probably not be a “bid for economic power” either.
Svensk Lag,
It will be interesting to read A E-P’s reaction to this. On the one hand British critics denounce the political architecture of the EU as unworkable but then as soon as someone tries to improve it they scream about power grabs.
On the other hand, one can understand – if the rumours are true – why Sweden and Britain are fighting any consolidation of EU financial power. If you saw most of your neighbours building a huge fortress in which to protect themselves from roaming bands of financial market raiders, and you knew you would end up outside the ramparts (Sweden and Britain opted out of the Euro), then you too would object to this project since if it is successful it will put both Britain and Sweden (as well as any other nations outside the Eurozone) in the position of easy pickings and thus in danger of eminent attack. They will eventually have to seek membership in the Euro in order to gain the protection of the herd.
Indeed.
By the way, this was too funny not to post: “Queen could help prevent future credit crunch”
http://www.telegraph.co.uk/news/newstopics/theroyalfamily/7202665/Queen-could-help-prevent-future-credit-crunch.html
Hilarious!
That’s got to be either an early poisson d’avril or some Telegraph writer accidently copy / pasted a story from The Onion.
I wonder if Carl XVI Gustaf will get similar briefings in Sweden!
caveat emptor: the telegraph is an ideologically anti-european newspaper. like most right-wing europhobes, the tone adopted by the paper’s editors (albeit more understated than e.g. the sun or the mail) is highly paranoid: “those europeans are all out to construct a secret superstate and take away our precious sovereignty and 1000 years of british history, etc”
my view is that whatever van rompuy is saying is the outcome of a discussion between sarkozy and merkel on how to handle the crisis, and his role is to win round the other eurozone countries. nb, the uk and sweden (both non-euro eu countries) have already expressed opposition to funding any bailout, so you can take it as given that whatever new “fiscal federal” arrangements get agreed will only involve eurozone countries – hardly a surprising outcome – though “eurozone countries” will probably also include the cee non-euro countries, which are legally committed to joining the euro (unlike the uk et al).
The inoffensive quote at the top was from the Telegraph, the much more sensationalistic “secret plan” story is from the Independent.
The new President of the European Council, Herman Van Rompuy, is using the financial crisis sweeping the eurozone to launch an audacious grab for power over national budgets, leaked documents reveal.
In an early and muscular assertion of authority over national governments and over the EU Commission, the Van Rompuy note states: “Members of the European Council are responsible for the economic strategy in their government. They should do the same at EU level. Whether it is called co-ordination of policies or economic government, only the European Council is capable of delivering and sustaining a common European strategy for more growth and more jobs.”
Mr Van Rompuy states that “the crisis has revealed our weaknesses”, adding: “Budgetary plans, structural reform programmes and climate change reporting should be presented simultaneously to the Commission [his italics]. This will provide a comprehensive overview.”
Sounds like textbook disaster capitalism.
“Never let a crisis go to waste.” – We know how to understand that slogan.
“This is an important juncture. Even though the subtext is that there needs to be some sort of EU deal for Greece and its Club Med confreres, it isn’t just getting to a deal, but the quality of the arrangement that matters for the long term.”
Yves: this is Europe. What matters in EU procedures is getting signatures on some kind of deal, any kind of deal. The nature of the deal itself is irrelevant.
The politicians signing the thing can then hold a historic press conference where they bloviate about how they are protecting the sovereignty and interests of their constituents, thus mollifying the voters.
The deal itself is still irrelevant because it will be expanded, terms redefined and ironclad guarantees abrogated later, after the voters are no longer paying attention.
Vid. the back-door implementation of the EuroConstitution, following the Irish and Dutch “No” votes.
Actually, I don’t agree with you here. The markets are demanding a reduction in ambiguity about EU arrangements. And they are not afraid to test to destruction (in fact, some of the shorts are hoping for that very outcome).
This is parallel to what happened with Freddie and Fannie. Jim Hamilton warned at the August 2007 Jackson Hole conference that the both the leverage of Freddie and Fannie and the pricing of the debt assumed a government guarantee. He went on as to why strains would be increasing, and warned that the markets would test the guarantee.
That test started in February 2008. We had the Paulson bazooka phase in July 2008, when he attempted to finesse the ambiguity rather than resolving it. You know how that movie ended, they were forced to put Freddie and Fannie into conservatorship and effectively guarantee the debt in September 2008. While Freddie and Fannie are technically not full faith and credit obligations, they might as well be, with a no negative net worth guarantee and unlimited backstops.
The markets now have the solidity of the euro arrangements in their crosshairs. They aren’t going to relent unless there is some meaningful action. They might buy some time with speechifying, as Paulson, but no real follow through means renewed market pressure.
Ain’t that, the kick in the pants. Every financial wizard wants to create the next gen exploding investing instrument, just so they can profit from it and the investment crowd cheers, until the flaming debris comes rain down…on them.
For the rest of the gang its toxics that they wouldn’t drink, if they had too…hay why is the oenologist not drinking his own drop..um never mind…I’ll take a case…my palate is over joyed!
Skippy…Liver and kidney damage, how the heck did that happen Doc.
I do not think the analogy with Fannie & Freddie is perfect. It is from the creditor point of view, but certainly not from the debtor point of view. Fannie & Freddie got a “get out of debt-jail for free”-card. As much as I am convinced that Greece will be bailed out, such a card is not going to be issued, given the eagerness of other countries to receive just such a card.
The only other option (apart from funding collapse) is for Greece’s budget to be placed under the authority of the commission in exchange for a debt guarantee. This implies (as eurosceptic countries like the UK will be quick to point out) that joining the monetary union is effectively losing (a part of) your sovereign status. While that is true in this case, it doesn’t need to be. A currency union is a mix of obligations and opportunities. Greece has been found out (by the markets, not the commision) enjoying the opportunities while dodging its obligations.
One mustn’t let a good crisis go to waste. (no matter whether it is real or contrived.)
The “Articles of Confederation” phase of the EU experiment is coming to an end. The question now is whether they will have a public “Constitutional Congress” of some kind to sort things out or whether Angela and Nicolas will simply get married in a bid to maintain legitimacy.
But what about UK…why no one is writing about it ? They have around 12% of GDP deficit budget and an overall debt at 68% of GDP, Spain is at 54% but no one mention such problem. Are we using double standard in order to overstate the trouble of the other avoiding discussion of in-house mess.
The bad situation of Greece is even due to the support of a wide known investment bank (always the same) that help them to cooking the number financially, and guess what the same institution is one of the major dealers of Credit Default Swap…so easily to beat them…look like that your lawyer is working for the police ! Is this the result of London summit of last year ? Well quite bad.