Germany the 'unquestioned' master of Europe, say analysts

8th December 2011, Comments 0 comments

Germany is emerging as the master of Europe, analysts said on Thursday ahead of a make-or-break eurozone summit, carving out in its own image a radical new fiscal union.

"For the first time in the history of the EU, Germany is the unquestioned leader, and France is number two," said Charles Grant, of the Centre for European Reform think tank, citing growing inquality ever since the financial crisis struck in 2008.

"Regular summits between Angela Merkel and Nicolas Sarkozy maintain the appearance of parity," he said. But citing divergent performance whether in terms of public finances, exports or the spreads on bond markets, France has been "forced" to bow to German leadership on economic policy.

Under intense pressure to deal with the contagious debt crisis, European governments are moving towards radical changes on the road to fiscal, economic and political union.

In the future, governments that overspend and so increase the risk of market penalties for currency partner governments could be fined or see automatic "corrections" imposed by the European Commission.

A so-called "golden rule" obliging governments to fix balanced budgets and bring cumulative debts back within EU thresholds over time means the EU executive would acquire intrusive powers to rewrite national budgets.

Guntram B. Wolff, author of a paper looking at what kind of fiscal union will emerge, and whether it is possible to prevent lopsided German dominance, says these and related changes together demand "the creation of a strong supra-national euro area authority within the EU."

What this means is even Germany ceding to "true federal powers" which would see reductions in the powers of all national parliaments, "including that of the Bundestag."

Luxembourg Prime Minister Jean-Claude Juncker raised eyebrows in a recent interview in a German newspaper when he said Germany too had public debts that no-one talked about.

Stellar German export earnings since the euro also contributed towards a resurgent undercurrent of French unease, at least on the left, at the rise of "Bismarck politics," as Socialist Arnaud Montebourg recently put it.

French President Nicolas Sarkozy himself hit back at these noises, echoed by Francois Hollande, his Socialist challenger going into next year's presidential elections.

Sarkozy said only one strategy was possible going forward, namely alliance with Germany. He cited the debts carried by Italy and Spain as proof of their weakness.

France does want Germany to water down its more bruising ideas, and succeeded in blocking an automatic right Berlin would have given the European Commission to punish budget sinners.

Likewise a ruthless vision of the role the European Court of Justice could perform in managing eurozone compliance as the currency union strives to get its collective debts back under control.

In the eyes of one top EU diplomat, like Germany's drive to ensure private sector losses on Greek bonds before putting up any more rescue funding, this would have been "an enormous error, as it would only have poured oil on the fire."

But even if Germany has made the previously unimaginable leap towards acceptance that a cross-border European monetary fund implying cross-border solidarity is gradually coming into being, it is still largely for Berlin to signal that the climate is right for the European Central Bank to evolve in the direction of a US Treasury-style lender of last resort.

© 2011 AFP

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