Keeping the dream alive

One of the more interesting aspects of EU politics at the moment is the crumbling Franco-German axis. The frictions between Nicolas Sarkozy and Angela Merkel – which are well documented by now - defined today’s EU summit in many ways .

As we outline in a new report published yesterday, Sarkozy wants an ‘economic government’ for the 16 eurozone members (meaning more influence over the ECB and possibilities to put pressure on Germany to stimulate domestic demand), while Merkel is pushing for tougher budgetary rules, backed by sanctions, but want them done primarily at the level of all 27 member states - fearing the politicisation of monetary policy if France gets its way.

Both the French and the German press seem to agree that Merkel now has the upper hand – and the conclusions from today’s Summit bears the Chancellor’s fingerprints.

Sarkozy and Merkel seemed to reach an uneasy – and just about face-saving – compromise earlier in the week, saying that “The natural frame for economic governance is at 27.” They also agreed on the possible need for Treaty change to introduce tougher sanctions to underpin the stability pact.

But tensions still persist. Sarkozy appears to be clinging on to his idea of an economic government for the eurozone. At a press conference following today’s summit, he said of his drive towards an economic government:

We are only at the beginning of the concept. Only four months ago, the words ‘economic governance’ were taboo. But the idea is progressing…The idea of economic government is not only about dealing with budgetary issues. It will allow us to put into place a strategy for competitiveness in several domains, such as research, social rights and universities.

He went on,

There will be sanctions for those who do not fulfill their commitments on debt. Fines are not the best solution. Together with Angela Merkel, we support the withdrawal of voting rights…Several countries want the sanctions to be the same for all member States […] Sanctions and obligations must be tougher for Eurozone countries.

Not the strongest stuff ever to come out of Sarkozy, but it still shows that he’s probably not going to give up on his dream of a euro economic government just yet – and that a new grand bargain between the Germans and the French won’t be achieved so easily this time.