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Quis custodiet ipsos custodes?

WSJ-E: France is Main Obstacle to a Euro Solution

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Two statements last week following the four-way summit in Rome between the German, French, Italian and Spanish leaders capture the essence of the euro crisis and show why a solution is as far away as ever. Responding to the latest demands that euro-zone bailout funds be allowed directly to recapitalize Spanish banks, German Chancellor Angela Merkel replied: “If I give money to Spanish banks, I’m the German chancellor but I can’t say what these banks do.” Later, French president François Hollande was asked about his willingness to accept further political union as the price of greater pooling of debt, he replied: “There can be no transfer of sovereignty if there is not an improvement in solidarity.” Boiled down, this is a debate over whether Germany should write blank checks.

There is no chance of this debate being resolved at this week’s summit of European leaders. The euro zone is now at one minute to midnight. Its financial system has fragmented, confidence is evaporating, demand is drying up and deposits are leaking out of the banks. There is now an international consensus on the measures needed to halt the immediate crisis: Massive bond buying by the European Central Bank, the direct recapitalization of banks by bailout funds and the creation of common euro-zone bonds.

But none of this is likely to be agreed at Wednesday and Thursday’s European Council meeting. Expectations are low and unlikely to be exceeded, according to people involved in preparations for the summit. At best, the leaders may agree a timetable for common supervision of euro-zone banks: Useful, but hardly enough to satisfy the markets.

The conventional wisdom blames Germany and its leader Ms. Merkel for this impasse. She has been harangued by world leaders, attacked in print and lampooned on magazine covers for saying “nein” to the pooling of euro-zone debt while focusing instead on long-term reforms. On Ms. Merkel’s insistence, much of this week’s summit will be taken up with discussions of proposals by the presidents of the European Council, European Commission, ECB and Eurogroup for banking, fiscal and political union. The case against Ms. Merkel is that this agenda is focused on preventing the next crisis rather than solving the current one.

But the idea that the euro zone can pool debt without a clear agreement on political union is a dangerous illusion. To create a fiscal and banking union without a political union would multiply the original mistakes in the creation of a monetary union. And there is one country that has historically said “non” to the transfers of sovereignty that might put the euro zone on a long-term stable footing: France.

France has always been reluctant to cede sovereignty to the European Union. It prefers intergovernmental—as opposed to supranational—solutions to European challenges, reflecting its long history as a centralized state. That is why the euro zone was largely designed along French lines, as a club of sovereign states. Read more in The Wall Street Journal Europe.

Written by Theophyle

June 25, 2012 at 8:46 am

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