Security talks aside, the Franco-German axis - which has suffered from strains for quite some time - has come out with a joint statement outlining its position on sanctions for eurozone countries that breach the Stability and Growth Pact:
- Countries running excessive deficits will have six months to get these down before sanctions are applied (a concession to France);
- After that, however, sanctions will kick in and be automatic (a concession to Germany).
We suspect that the bulk of this statement will be copied in the conclusions of Van Rompuy's task force on eurozone economic governance (if that group ever comes up with some conclusions that is).
As the Economist's Charlemagne points out, by agreeing to delay the sanctions for eurozone countries for six months, Germany has caved in to French demands in no small manner. Hawkish countries like the Netherlands and Finland now feel betrayed by Berlin. But this volte-face could also have awarded Germany a bigger price: France's support for a treaty change to introduce an "orderly insolvency procedure" for cash-stripped eurozone countries.
As we've noted over and over again - German calls for a Treaty change to fix the eurozone are real, not mere rethoric.