Germany has flatly rejected the French suggestion that the eurozone needs some form of “economic government” to help Europe become as powerful and agile in managing financial crises as the Federal Reserve can be in the United States.
The split shows how difficult it is for EU nations, notably the 15 member states that have adopted the euro, to act together and surmount individual national interests in responding collectively to a major global economic crisis. This inability to function as a unit will limit the EU’s ability to equal or supplant the US as a possible Global Financial Reserve.
France’s President Nicolas Sarkozy said on Oct. 21 that Europe needed to pair the European Central Bank with an “economic government” that added political credibility and weight to the bank’s action. Currently, the ECB’s mandate is confined to limiting inflation, which in effect largely confines its role to adjusting the collective interest rate for the eurozone. Without added political authority at its helm, Sarkozy said, the eurozone will prove unable to function in the turbulent times prevailing in the global economy.
In an interview published the following day, Germany Economic Minister Michael Glos rejected the idea, which would imply some degree of EU oversight of German economic policies. His exchange with Sarkozy illustrates the difficulties in the way of a comprehensive Europe-wide plan to get through the present crisis and prevent future ones. “Entrench national interest still dominates the eurozone,’’ the U.S. analytical group Stratfor said in a note on its website.
“Giving the ECB access to liquidity and the ability to funnel it to banks and industries in need would necessitate a eurozone-wide tax that could raise such funds as well as a eurozone-wide policy-making body that would decide who receives those funds,’’ according to Stratfor.
As Gros indicated, that would problematic for Germany. Berlin might see tax receipts in Germany go to Greece or Italy to bail out banks there. Even if Germany could be persuaded to consider taking on a new leadership role in this area, smaller countries in the eurozone would be fearful that their financial institutions would end up being subjected to those in Germany and other big European countries.
The problem poses a fundamental challenge to the long-term coherence to European monetary integration, especially now that major turbulence is threatening the system. Since the European Affairs Journal last discussed it, “Will Crises Boost the Euro and Eurozone as Rival to Dollar,” the rivalry has raised a prominent issue in the US media.
Since this post there have been new developments in the French-German economic quarrel.
German Chancellor Angela Merkel said in very definitive language that, “any attempt by a French sovereign wealth fund (announced by Sarkozy) to prevent an acquisition by foreign capital must be compatible with internal EU regulations. Furthermore, if there is to be a new “economic government” of Europe, the “natural president” is Luxembourg’s Juncker, not Sarkozy”, according to the blog French Politics.