Ouch!!!

Usually mild mannered Swedish politicians have certainly displayed an unusual willingness to communicate strong opinions on European political issues of late. After some forthright comments on twitter from foreign minister Carl Bildt on Lybia recently, we now have finance minister Anders Borg eviscerating Gordon Brown’s reputation and lingering chances of becoming the new head of the IMF.

Speaking to Jeff Randall on Sky News, Borg said:

“It would be difficult to have a person that is so responsible for the fiscal crisis in the UK at the helm of the IMF… a country with a 10% deficit is I think a little bit problematic… the IMF today is very much about restoring fiscal responsibility”

Borg went on to tell Svenska Dagbladet that:

“He has been one of those who has argued for the deficit politics that we now see the results of. It would be odd to argue for him.”

For Gordon Brown, the self-styled saviour of the world, that has got to hurt. Nevertheless, it's refreshing to hear politicians who are not afraid of speaking their mind.

Some straight talking from Borg

Anders Borg, the Finance Minister of non-euro member Sweden, today had some strong things to say about how the Portuguese government has handled itself. He told Swedish Radio:

"We have reason to be very critical of the Portuguese government. This is a decision that should have been made in November, December. It’s been obvious for a long time that this country can’t stand on its own two feet.

There have been very frank discussions but the discussions have got stuck in internal political discussions instead of the necessary decisions are being made.

The Portuguese government has made the situation worse for itself and has contributed to an uncertain situation which has cost jobs and wealth in other countries. So we have reason to be strongly critical of them."

On the question on whether Sweden will contribute to a bail-out,

“It’s so complicated so we need to wait until some pieces fall into place.”

Pretty tough talk.

Will this make countries keener on joining the euro?

Negotiations on the shape and form of the eurozone's permanent bailout scheme - the "European Stability Mechanism (ESM)" - are entering a crucial phase. The fund is meant to be up and running by mid-2013 and is likely to have €500bn available. Of this amount, between €80bn and €100bn will be up-front cash from member states - the rest will come in the form of guarantees.

People are naturally getting nervous about this arrangement, particularly in Germany. Sueddeutsche suggested the other day that German taxpayers will need to contribute between €18bn to €25bn to the scheme in paid up cash (in addition to the guarantees).

Chancellor Angela Merkel isn't too keen on discussing how much Germany might have to contribute in the end. "She doesn't want to talk about this now", a diplomat reportedly said.

We can see why. A direct €25bn liability on Germany's books could increase the country's borrowing costs and hamper efforts to consolidate its budget.

To avoid this, the German government is pushing only for countries without a triple A rating to contribute paid-up cash, as triple A countries - so says Merkel - are lending their good name to the cause, and that's quite enough. But this, in turn, would increase the cash contributions from weaker eurozone members. This has raised alarm bells amongst weaker euro economies as well as a range of non-eurozone members.

Reuters yesterday quoted EU sources saying that eurozone members Estonia and Slovakia as well as Latvia, Lithuania, Bulgaria and the Czech Republic have all criticised the plans. They argue that basing cash contributions to the ESM on a country's proportion of the ECB's paid-up capital is unfair. The countries have even threatened to block proposals for tougher EU-wide budget rules unless changes are made to the suggested ESM arrangement. One representative said,

"Unless there is a change to the ESM capital key we will block the agreement on the governance package once it returns from parliament and EU finance ministers have to approve it by unanimity."

Also non-euro member Sweden has objected to the proposed capital key for the ESM.

Why do these countries feel so strongly about this issue. They're not in the eurozone after all? Well, probably because they understand that, were they one day to join, they could be forced to cough up actual cash to save a Greece, Ireland or Portugal. Paid up cash is a far more serious liability than loan guarantees. Slovakia's refusal to take part in the Greek bail-out gives a hint as to why these countries aren't thrilled by the prospect of a permanent bail-out arrangement linked to the ECB's capital key and credit status. In such an arrangement, smaller economies that haven't really done anything wrong could end up with a pretty hefty bill.

On a related note, where is the UK in all of this? So far, the UK appears to have taken little interest in the structure and pay-in arrangement of the permanent bail-out mechanism. If this is because it doesn't intend to ever join the euro, that's one thing.

But if it's because Britain thinks it has no stake in making sure that the new eurozone rules are fair and make economic sense - rather than facilitating even greater meltdowns down the road (a very real risk) - then the UK government is sadly mistaken.

Not restrictive enough...

We see it as a bit ambiguous and from a Swedish point of view, not restrictive enough when it comes to the budget...our position is that even the possibility of an increase to the budget, which the signatory countries are open to, is too far-reaching...First we want to discuss the content in the budget, what we should spend the money on. When that is done, we can see what it costs.

- Swedish PM Fredrik Reinfeldt explains why he didn't sign the Cameron-Merkel-Sarkozy letter at last week's EU summit, which called for a cash freeze to the EU's long-term budget.

Europe turning against the euro?

Well, we're not quite there yet. But those who still think - and there are some - that reservations about the future of the euro is something which exists primarily amongst the we-told-you-so bunch on the Tory backbenches, should try to pick up a European paper once in a while.

While the tone and focus on the criticism differ - depending on the prevalent attitude to Europe in the respective countries - media across Europe is clearly becoming increasingly disillusioned with the entire euro-project. And it would be strange otherwise.

An opinion piece in Expansión - Spain's main financial daily - argued:

"The next foreseeable step is that the other peripheral European countries, whose welfare is in question, will question the legitimacy of a supranational body which holds very little democratic counterweight to impose blood and tears."

An opinion piece from Spanish daily La Razón's Brussels correspondent, Jorge Valero, titled "the sweet decadence of Europe", argued:

"The slow exit from the recession, in comparison to the US and emerging economies, has revealed the shadows, imbalances and contradictions of the jewel in the crown of the European utopia: the euro."

Moving to France, a comment piece in Le Figaro noted:

"The Greek domino fell during last spring. The Irish domino has been wobbling over the last days. The Spanish domino will follow suit, along with the Portuguese domino. This is all very sad for those experts who conceived the eurozone and put it into practice - by pursuing an often absurd monetary policy which led to the 'genocide' of our industry."

In Germany, the front page of yesterday's Handelsblatt carried the headline: "The next Ireland is called Portugal", while an article in the paper noted that the current crisis has "once again revealed the two-tier society of the eurozone." An article in FAZ warned against the EU's "bizarre bailout logic" that because Ireland has been granted a bailout, then "there is no need to worry about Portugal and Spain."

In today's Handelsblatt, a comment piece argues:

"whether we can save the euro, is questionable. It is however sure that we become gravediggers when we push countries in crisis into a straightjacket".

As we note in a previous post, in yesterday's Die Welt, Dorothea Siems expressed some strong views:

"The euro-adventure stands the risk of meeting a terrible end. Germany must make clear where the borders of what it can bear lay. This is because the euro isn't a goal in itself. The EU is a lot more than just Euroland. Not because of national power play, but because of a sense for reality. The future of the EU should not be made dependent on the euro, simply for the reason of not wanting to harm European unity in the long-term."

Further north, an analysis piece in Swedish daily Svenska Dagbladet noted that:

"it took six months for the markets to figure out that the miracle cure against the debt disease which the EU-doctors prescribed this Spring consisted of worthless soda water."

An opinion piece in the Hungarian paper Magyar Nemzet by columnist Anna Szabo argues:

“The eurozone, which most East-Central European states wanted to join, is now marching towards uncertainty […] Until now the requirements for the introduction of the euro could be sidestepped without punishment and now [all eurozone countries] are facing the consequences.”

Meanwhile, Hungarian news magazine HVG reports that the Hungarian Prime Minister Viktor Orban has said that Hungary “is glad that it is not in the eurozone.”

Illusionary democracy?

We've looked at this issue before, but the Swedish Parliament, the Riksdag, yesterday supported its finance committee in protesting against the Commission's proposed amendments to the Deposit Guarantee Schemes Directive, which would oblige member states to transfer money to another member state's deposit scheme, if that scheme had run out of money. The Riksdag said this would create a moral hazard, as some countries could be tempted to under-fund their schemes, knowing that someone else would ultimately pick up the bill. The German Bundesrat has also objected to the proposal and today the lower house in Germany, the Bundestag, will give its opinion on whether it will formally object to the amended Directive.

This is the first time that national parliaments have tried to use their new 'powers' entailed in the Lisbon Treaty. The Treaty gives parliaments the right to oblige the Commission to re-consider - but not scrap - a proposal, if a third of national parliaments object to the proposed legislation on subsidiarity grounds, within an eight week window. As even Andrew Duff - the liberal MEP who has been a staunch defender of the Lisbon Treaty - has admitted, the Lisbon provision on national parliaments was never intended to be used in practice as it's very difficult to get nine parliaments to debate and then object to a piece of legislation within such a narrow time period as eight weeks.

And the task of getting nine parliaments on board looks very tricky indeed. The deadline for national parliaments to object to the Deposit Guarantee Schemes Directive is 25 October, and according to the "Interparliamentary EU information Exchange" so far only six parliaments have even begun scrutinising the proposal. Typically, the eight week period comes smack in the middle of parliamentary recesses in most countries, making the task even more difficult (although the Commission generously discounted August from the period).

It's hard not to see this provision as mere illusionary democracy, which the EU elite inserted into the Lisbon Treaty to be able to make the case that 'everyone wins'. But still, it's good that national parliaments are giving it a shot.

Surely, the UK Parliament should object too, given that the reservations concern moral hazard, transfer of funds between member states and subsidiarity?

Waking up to smell the coffee

As the eurozone's flaws and weaknesses continue to manifest themselves in the midst of the Greek crisis, the appetite for the euro in Europe's far north is dminishing. In Denmark, the government has been forced to kick a referendum on the country joining the euro into the long-grass, following objections from Danish unions and others over the state of the euro - and in particular the Commission's instant new powers to meddle in negotiations on pay between national social partners (a clear no-go zone for Scandi unions).

And in Sweden, citizens have done a bit of a U-turn: a poll for Swedish Television shows that 50% of Swedes are now against the country joining the eurozone, with 39% in favour and 11% undecided. When the same question was asked in April 2009, 47% were in favour of joining the euro, while 45% were against. Changing sentiments in other words. And who can blame them? The Swedish krona is on the move and more and more commentators are acknowledging that the country has benefited from staying outside the eurozone (benefits which include an annual windfall profit of SEK 30bn from higher exports).

Not everyone is getting with the programme though. The Swedish Liberal People's Party - which forms part of the governing coalition - still says on its website: "Sweden joining the monetary union would eliminate uncertainties and currency risks - and would contribute to more investments, higher income from exports and economic growth."

Right...

Not quite getting it

As noted previously, Sweden is now at the helm of the EU. For those of you not familar with the country's position on the EU, it can basically be summarised as follows: pretty much on track on individual EU policies (such as financial regulation, the EU budget and labour market regulation) - but lost on the big institutional questions - such as the Lisbon Treaty.

For instance check this out - it's from a magazine commissioned by the Swedish government to inform us about its Presidency. One of the articles, looking at the Lisbon Treaty, is particularly revealing. Torbjörn Haak - Deputy Head of the EU Coordination Secretariat at the (Swedish) Prime Minister’s Office - has clearly not quite grasped the debate surrounding the Lisbon Treaty - or how politically charged it is. Neither has the journalist writing on the government's behalf.

The article informs us that:

"Being the civil servant he is, Torbjörn Haak avoids taking a political stance but notes that the Lisbon Treaty gives both the European Parliament and national parliaments more power.
'It’s not a question of a massive transfer of power to Brussels,' he says. 'It doesn’t introduce any broad new policy areas.' But, he adds, national parliaments will be able to keep a check on their governments' EU policies and will also be able to scrutinise legislative proposals from the European Commission."

Ha! No, not political at all. Never mind this week's ruling from the German Constitutional Court, which alluded to the potentially detrimental effect the Lisbon Treaty will have on national parliaments. And never mind the damning verdict by the UK Commons European Scrutiny Committee, which said the Treaty offered no significant new powers for national parliaments. (See here for why national parliaments will in fact lose influence under Lisbon).

Failing to recognise one of the most basic politcal disagreements on the Lisbon Treaty at this particular moment in history is simply not okay - for key civil servants and journalists alike.

Sweden is a voice of reason on many issues in the EU. With the Lisbon Treaty now firmly on the home stretch, there couldn't be a better time for the country to start applying some of that reason to this vital debate.

Scandinavians still hesitant about the euro

Peter Sutherland told the Today Programme a while back the Danes and the Swedes are "shaping up" to join the euro, claiming that there are "a majority in the public opinion wishing to join" in both countries.

Well, not quite. While the debate has picked up, a poll published yesterday showed that support for the euro actually is on the decrease in Denmark compared to a few months ago. In fact, public opinion is split right down the middle - 42% in favour, 42% against. In November last year, 51% were in favour.

Meanwhile in Sweden, there has never been a majority in favour of joining the euro, although the opposition has weakened somewhat lately. The latest poll from Statistics Sweden shows that 47% of Swedes would vote "no" in a referendum on joining the euro, 38% would vote "yes", and 15% "don't know".

Signs of change in Sweden?

The Swedish EU-debate is showing healthy signs of revival. In Saturday’s Expressen, 50 young Swedish representatives of liberal and conservative organisations and political parties criticised their centre-right Government’s “uncritical” position on the EU. In addition to listing several areas of EU-reform, the group called on the Swedish Government to reject the proposed EU Constitution which, they argued, “in several respects resembles a Social Democratic manifesto”.

And yesterday, former Swedish Speaker of Parliament, Social Democrat Björn von Sydow, had an article in Dagens Nyheter arguing that national parliaments need to become ”a more effective counterbalance” to the EU Commission. He suggested a provision in a revised constitutional treaty, whereby one quarter of the bloc’s parliaments acting in unison could veto an initiative from the Commission. “I have myself seen that [parliaments] can work in such a coordinated way”, he said.

Much needed contributions to a debate that for too long has been stuck in a tedious yes-or-no, right-left mode.

Swedish secrets uncovered

The Swedish press has been awash with rumours that Angela Merkel sent a letter to the Swedish Government which - among other things - set out how the Swedes could go about avoiding holding a referendum on the EU Constitution. The intrigue was largely created by the Swedish Government's insistence that the letter was secret and should remain confidential - running counter to the convention that all official documents are should be made public.

Swedish online news site Europaportalen has got hold of a leaked copy of the letter. Unfortunately, as with most of these things, the reality isn't quite as interesting as the rumours. Merkel is simply asking Swedish Prime Minister Fredrik Reinfeldt to appoint an adviser "who enjoys your confidence" to take part in the discussions which will draw up the Berlin Declaration and will attempt to revive the EU Constitution.

Of greater interest is the "tentative schedule" that Merkel attaches to the letter. The "focal points" (advisers/sherpas) will focus on drawing up the declaration until March. Attention will only turn to the Constitution after that - first with a gathering of heads of government "on the margins of the celebrations". The Germans are obviously hoping to ram the thing through in under three months - although much will depend on the outcome of the French Presidential elections.

The Germans are reported to be pulling out the diplomatic stops - they have already identified the Poles, Czechs and the Brits as the problem countries and are threatening them with "isolation" unless they fall into line. It should be an interesting few months...