The EU and 'never again'
PARIS On the wide beaches of Deauville they looked like any other couple, bent into the breeze against a pale sky.
The relationship of President Sarkozy and Chancellor Merkel has not been easy. They were once described as two leaders born under different signs. The German chancellor finds the French president mercurial. He, for his part, is wary of a leader who in his view increasingly places the German interest above European solidarity.
Yesterday, on the Deauville boardwalk, they were in harmony, backing a radical rewriting of EU rules. Some say the changes are the most significant since the creation of the euro in 1999.
The purpose of this flurry of meetings is to prevent a crisis in the eurozone recurring.
The key change is that the EU is committed to embracing sanctions against those states that blow their budgets and threaten the eurozone. Much of the detail has still to be worked out. What form will the sanctions take precisely? Will there just be a financial penalty or will voting rights on EU matters be withdrawn?
Running parallel to the summit in Deauville was a meeting of finance ministers in Luxembourg. One of the arguments there was whether the sanctions should kick in automatically or whether there should be some discretion. Germany - presumed to be in the hardline corner - surprised even its friends by backing flexibility.
To bring all this about President Sarkozy and Chancellor Merkel believe that treaty changes are needed. Angela Merkel has long argued that amendments to treaties would be needed. The French president now agrees with her.
The problem with EU treaty changes is that they come with all kinds of baggage. It won't have gone unnoticed that the EU has just spend eight years haggling over a new treaty. Now, however briefly, the union once again will be facing inwards, preoccupied with changing its rules and structures.
Once treaty changes are on the table it may not be easy to limit the agenda to the issue of sanctions. Other countries may seize the opportunity to introduce other changes. Treaty changes may also trigger referendums, where the people get a chance to give their verdict and the outcome can never be guaranteed.
The country most against the idea of a treaty change is the UK. David Cameron simply does not want to handle the problems that may come with it. The coalition government is committed to holding a referendum on any treaty change that transfers power from Westminster to Brussels. The British government reiterated again today "we will not support anything that involves a transfer of powers from Westminster to Brussels".
The European Council President, Herman Van Rompuy, will be charged with negotiating those treaty changes and bringing them to the boil in the spring of next year.
Now initially the sanctions will only apply to those countries in the eurozone, but the Economics Commissioner Olli Rehn wants to extend the new rules to all 27 members. Britain believes it has a clear opt-out from any sanctions.
There is a second part to what was agreed yesterday. The French and German leaders backed a permanent safety net for those countries that run into trouble. At the moment that countries can tap into. When that expires in three years it may be replaced with a permanent fund and a mechanism to manage national insolvencies.
Olli Rehn says all of this is a "litmus test" as to whether "states are genuinely for economic governance or not".
Perhaps. As the Eurogroup president Jean-Claude Juncker says, "the devil is in the detail". Could a country that is determined to run up a deficit, for whatever reason, be prevented from doing so? Will the existence of a permanent bail-out fund encourage countries to act irresponsibly? Will the German parliament agree to a safety net that could end up with Germany bankrolling other EU countries?
The euro is now like a heart patient. It has had the big scare. Now it will be subject to scans and stress tests. There will be much closer surveillance. Other countries will be able to insist on healthy behaviour. The eurozone will be monitored like never before.
What is not getting so much attention are the causes of this crisis. Countries with very different economies are harnessed together in a monetary union. Some of those countries used low borrowing costs to finance a boom. Unit labour costs grew. In order to regain competitiveness years of wage and spending cuts lie ahead. And where will growth come from? And how will jobs be found for the 23 million out of work? That is Europe's real crisis.
I'm 
Comments
or to comment.