IS EUROPE GOING TO GET A NEW IRON CURTAIN?
In conversations with a senior German banking and other sources today, The Slog has been told that Franco-German discussions about a new eurozone superleague are considerably more advanced than yesterday’s hasty denials might have suggested. Far from being discussed “at an intellectual level” (as Berlin diplomats have been suggesting over the last 18 hours) they have been discussed beyond general principles over several months. The real spanner in the works now, one source alleges, is that France’s position has become far more perilous.
On the whole, markets around the world have so far reacted remarkable calmly to the leaked news that Germany and France (the original founding members of the European club) have been having talks about fast-tracking fiscal integration in a smaller, north European EMU zone, without the southern and peripheral members. I confess to being surprised at the calm, because my initial gut reaction on reading about these ‘talks’ was of the only two credible debt guarantors distancing themselves from the problem. Were I a sovereign lender, I’d be alarmed. Maybe they are….but keeping quiet. Or perhaps they’re stupid. It’s often hard to tell these days.
The Italian situation has, however, brought us to serious crunch-time. Whichever way the PRs try and play this tune, it’s short and sweet and it goes like this: as none of the member States is prepared to stump up the money to rescue Italy – and the bazooka is still an ammunition-free bazooka – the EFSF must step in to help, with the ECB buying yet more junk. After that, it’s decision-time for Germany….and gold-selling time for France. At this crossroad, there is no turning left or right: it’s full speed ahead, or reverse. On paper, the Franco-German plans look like a reverse. During an address to students in the French city of Strasbourg two days ago, Nicolas Sarkozy pointedly said a two-speed Europe — the euro zone moving ahead more rapidly than all 27 countries in the EU — was the only model for the future. What’s become clear overnight is that the new eurozone might only have four or at most five members.
The eurozone reaches so many crossroads in a given month, it is rapidly running out of turns to make. But one thing that runs through all the pathetic eurospin (and is it really spin any more, or just rapid wrist action?) is this desperation to keep the magic initials ‘EU’ out of anything suggesting the demise of the eurozone.
Why does anyone accept this insane insistence that the eurozone could collapse, but the EU wouldn’t? Are we really trying to say that, by the time France and Germany have enforced austerity onto the ClubMeds, and then walked down the road to set up Eurozone (2013) GmBh, everyone will still be friendly enough – or willing at all – to have laws imposed on them by Brussels? The idea that the EU was ever, for politicians, based on anything other than an economic bonus, graft, and power is completely silly. Once the carrots are taken away, who wants to be beaten with a stick?
The German and French advisers behind their politicians are smart enough to have realised this….hence the ongoing talks. And this morning, the Slog’s Bankfurt Mole seems to be confirming that, in effect, the solvent politicians will ringfence themselves against debt guarantees in the near future.
“As I have confirmed already,” the Mole began, “Germany has no intention of allowing politicians to destroy the country’s financial credibility. A terrible mistake was made twelve years ago, and now it must be corrected. If we go down any other path, there will be no end to the costs and misery involved for everyone.”
Asked directly about discussions concerning a smaller ‘northern’ eurozone, he replied, “These are longstanding and represent what you would expect any responsible nation to discuss with a close neighbour and ally. There must always be forward planning about such things. And naturally, there must always be diplomatic denial. All this is normal.”
That is in a similar vein to the Mole’s earlier statements confirming preparations for a return to the Mark as a currency. Asked again about this matter, however, I got the impression that it wasn’t a closed book. He commented:
“You obviously realise that the position of France has changed. There would be no point in trying, as it were, to relaunch the eurozone, if one or more of its members was likely at any time in the foreseeable future to be unstable. Plans must change if circumstances change. One must keep all options open for as long as possible.”
The reference to France would be diplomatic dynamite if it was found to represent BundesRepublik foreign policy. During today I have contacted a source in Brussels and one in Paris, in order to put this possibility to them. In an astonishing statement, the Brussels contact suggested, “From an EU standpoint, what has now come to pass is the very thing the EU was created to avoid – Germany in a preeminent position. Germany needs the EU, or some very similar sort of organisation, as a market for its goods. But it does not need the power of France any more. As time goes on, France looks more and more like a liability. Germany has spent more than half a century needing French approval for everything in Europe. That time is now passed.”
My Parisian source is a trusted one, and this person offers a different perspective.
“I really don’t think Germany could, as you say, ‘dump’ France,” he said, “And if they were preparing to do that, we would know. We have no indications of this at all.”
But the situation is changing daily. Barclays has already declared that Italy is “beyond the point of no return”, and Greece hasn’t been able to fund its deficits either domestically or in the international markets for ages now. This is what happens in crises: the money stops, and then governments and central banks are faced with a choice. Do they step in, or do they walk away?
“There is now a full-scale run on the world’s third- largest bond market,” said Nicholas Spiro, managing director at Spiro Sovereign Strategy in London. “If Italy fails, the euro zone fails. The worse things get in Italy, the greater the pressure on the ECB to intervene on a massive scale.”
Speaking in Berlin, German Chancellor Angela Merkel reiterated a call for changes to be made to the EU treaty – the laws which govern the European Union – saying the situation was now “so unpleasant” that a rapid breakthrough was needed. It is significant that, from the German standpoint, altering the EU treaty would be an opportunity to fast-track eurozone integration. But would this be a Trojan Horse for the so-called Nordeurozone?
Stay tuned.
PS Former ECB vice president Lucas Papademos has been named Greece’s new prime minister, and immediately pledged cooperation to help solve the country’s severe problems. So The Slog was right after all.
The Slog 