Eurozone: it's getting better... and worse
One aspect improved over the last 6 months. There was evidence of pragmatism and willingness to compromise - we hope it will not be too little too late.
You will recall the EU meeting in early December when David Cameron decided to walk away, alone among countries represented.
An agreement was reached amongst the remaining twenty six EU leaders for a re-structuring of the eurozone which just might work - our short hand for it is “Germanisation” and we consider the detail to the right. But there are two immediate problems:
it still has to be approved by individual governments/parliaments, and, crucially, by voters in many cases
it could prevent future crises, but doesn’t deal with the current (huge) debt crisis
The process, to seek approval by voters of individual countries, will be VERY divisive.
If you were following the story as it unfolded, you might recall that Germany and France wanted to bring in these proposals on the nod, without detailed scrutiny within individual countries.
This might have worked if there was a unanimous vote - that was scuppered by David Cameron.
It is extraordinary that they thought they could get away with this - yet it highlights how complex these problems are, and how difficult it has been, and will be, to reach agreement among so many countries.
For example, these changes will impose limits on the spending of all eurozone countries, and this will be enforced by the European Commission. This is a huge constitutional change for all these countries, the greatest in Western Europe since 1945. Will that loss of sovereignty be accepted in all the seventeen countries of the eurozone?
Will people in Spain or Greece or France accept that decisions on new hospitals or schools will effectively be decided in Brussels or Frankfurt? The changes will have a greater impact than the introduction of the euro.
Core problems - France
No wonder Sarkozy was so irritated by the UK, making his life even more difficult. He has a Presidential election on 6th May, and his opponents are already highly critical of the ease with which he is prepared to give away French sovereignty. Antagonism with Germany soon appeared in the French press.
Right wing Presidential candidate Marine Le Pen has already said she would abandon the euro. The socialist Presidential candidate, the current favourite, has said he would re-negotiate the December agreement if elected.
For all the bluff of Sarkozy and his ministers, France is not in great shape to weather the economic and political storms which lie ahead.
Greater potential for growth would certainly help, as it could mean less austerity. Yet in France just 51% of the adult population is employed, and they work an average of 30 hours per week.
Compare this to Singapore. 63% of the people are working, and they work 46 hours per week.
Explosive possibilities
Including France, there are five key elections in eurozone countries in 2012, and possibly seven referendums to approve the 9th December plan.
The latter plan is hugely more fundamental than those of 2004 (Lisbon Treaty), which barely made it through the referendums. Moreover conditions now (economic and political) are much more highly charged. This is why the Irish government, for one, is desperate to avoid a referendum.
Even if every country approves “Germanisation”, getting there will be long-winded. The markets will not be patient and will swing around violently with every rogue opinion poll from any one of 17 eurozone countries.
What if one of those countries rejects giving up its sovereignty (hard fought for in many instances) to unelected officials, whose strings are pulled by Germany? That could be explosive.
What could go right? There are a number of theoretical possibilities. But perhaps the most likely is that markets lose patience, perhaps triggered by a Greek or Portuguese or Slovenian default, or a negative election/referendum result.
And then, with markets sharply lower, not just in the eurozone but around the globe, Angela Merkel is forced to accept that a significant fiscal union is required now, along with some joint acceptance by all (particularly Germany) of each others debts.