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Disappointment in Europe from the deal of Deauville

Published on , , Sofia

The Franco-German deal of Deauville has provoked widespread criticism. As euinside wrote, Germany retreated from its position automatic sanctions to be applied on euro area countries that violate financial and economic discipline. The aim was to win French support for a permanent mechanism for crisis resolution to replace the temporary rescue fund for the euro area.

The Financial Times wrote, that the president of the European Central Bank Jean-Claude Trichet was also unhappy with the lack of swift and severe penalties. Trichet did not agree with some points of the agreement reached by EU finance ministers in the Task Force, headed by the President of the European Council Herman van Rompuy. Although in the report the automatic sanctions (the reverse voting mechanism) are provided, the joint Franco-German proposal states the opposite.

Commission's proposal from last month speaks of automatic sanctions that can be triggered only by a Commission's decision on the basis of noncompliance with specific indicators. The sanctions come into force without the express approval of the Council, unless it would subsequently reject them. The so-called reverse voting mechanism aims to make sanctions less dependent on political intervention by the finance ministers. According to the Franco-German declaration, however, decisions on sanctions should be taken, as it is now - by qualified majority voting in the Council, which practically preserves the status quo.

Some of the major European newspapers also criticised the German position. However, the Slovak business newspaper Hospodárske Noviny has an interesting point. Slovakia is the only country in the euro area, which declined to participate in the rescue fund for Greece. Initially Bratislava committed to join, but after the national elections, the country's new prime minister Iveta RadichovaRadichovaRadichova announced that the government would not give money to save Greece, while having its own financial problems. Here's the comment of the newspaper Hospodárske Noviny:

"Finally the Union had the chance to punish the rule-breaking countries that had heaped problems on others. But once again the French, Spanish and Italians were only ready for cosmetic changes, and practically everything remains as it was. Now it's not the real economic facts that will decide who has to pay for their irresponsibility, but the politicians of the countries concerned. ... Irrespective of this failure, [Slovakian Prime Minister] Radičová deserves praise for her firm attitude. Although she was roundly condemned for her refusal to help Greece, ... other countries are beginning to agree with her. Now we have the Czechs, Germans and Scandinavians on our side. ... Even if that's still not enough, thanks to Radičová things are slowly moving in the right direction."

The point is, that now Germany puts forward the issue of a permanent rescue fund for the euro area, moreover - wanting it legally justified. While now Slovakia can afford to have this kind of position, it will hardly be able to impose it when it comes to Treaty amendments.

And the issue of possible changes in the Lisbon Treaty causes a real horror in Ireland, where its ratification passed in two referendums, since in the first the Irish rejected it. Moreover, now the country is in a severe economic and financial situation, taking monstrous costs reductions because of a record high budget deficit and the government does not enjoy great popularity. On this occasion the newspaper Irish Times wrote:

"For Ireland’s political class the prospect of another treaty referendum is nightmarish. It had been hoped – indeed, promised – that Lisbon II would be the last for decades. There will be concerns at asking people to revote so soon, and at the reaction to a suggestion that voters should back the possibility of depriving delinquent members, Ireland included, of their vote. The sovereignty issue would make for a difficult campaign, although a surprising number may well welcome the idea of the EU putting manners on a government whose economic management left so much to be desired.

A growing public sense that the EU is crucial to the Irish economy was certainly critical to the passage of the second Lisbon referendum, but experience has also shown that voters can decide to use a poll to punish a government, irrespective of the issue on the ballot paper. But defeat of provisions for the fund would leave Ireland without a lifeline it may desperately need and plunge the EU into a potentially existential crisis. The responsibility on a government of whatever hue will be enormous."

The discussion about possible changes in the Lisbon Treaty will set a new tone to the European Council next week. The position of Commission President Jose Manuel Barroso is well known - he is firmly against Treaty changes. Now, however, besides France and Germany, the European Parliament also announced its ideas for changes. The Parliament supported the request of Paris and Berlin a permanent rescue fund for the euro area (European Monetary Fund) to be established. MEPs also want the creation of a new post, responsible for economic and monetary policy, the holder of which should be a Vice President of the Commission and at the same time should chair the Council of Finance Ministers (Ecofin).

Both proposals need changes in the Lisbon Treaty, which the Commission seeks with all means to avoid. At this stage, however, the forces in favour of the changes seem predominant. The result will become clear next week.

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