German Chancellor Angela Merkel and French President Nicolas Sarkozy are presenting a united front in public, and pointing at a global bank levy. But, as the Irish Times reports, behind the scenes things are not well with the European leaders
In an hurried show of unity, the two leaders penned a joint letter to the European Commission, urging it to speed up efforts to regulate EU financial markets.
Ahead of yesterday’s meeting, French finance minister Christine Lagarde insisted that a new EU structure was essential to enable “close oversight of the competitiveness of every member state as well as competitiveness gaps between members”.
She added: “The logical consequence of this is an economic policy that allows the even out of competitive differences, to harmonise economic policy with the possibility of mutual off-setting.”
Ms Lagarde declined to specify what she meant by economic harmonisation. She refused to be drawn, too, on whether Paris wanted any new secretariat to oversee the entire 27-member EU or just the euro zone.
This exposes the clash of economic cultures hindering agreement: in France, growth is traditionally a result of consumption and debt while, in Germany, the economic tradition is coloured by strong exports and keeping spending and wages in check.
“Both sides insist their model is best and both sides have allowed things continue along this confrontation course, with the tone becoming very harsh,” said Dr Claire Demesnay, Franco-German analyst at the German Council on Foreign Relations in Berlin.
The BBC Europe editor Gavin Hewitt adds
In all of this there is much that remains unclear. There is a fog around the words “economic governance”. As regards the relationship between Angela Merkel and Nicolas Sarkozy, they will have to do far more to convince an anxious Europe that they see eye-to-eye. Only this week the German magazine Der Spiegel said that “they can hardly stand each other” and that she calls him the “little Napoleon”. The French paper Le Point concludes “nothing is working anymore in the German-French relationship”.
Meanwhile, as Europe’s leaders circle each other, there are clouds on the horizon. Many people expect a Greek default. Despite the optimistic words coming out of the Greek finance ministry it is hard to find an official in Brussels who does not think that sooner or later Greek debt will have to be restructured. “Restructure” is the word that dare not mention its name, but it may still happen. And then the question is whether Greek debt should be restructured inside or outside the eurozone.
Then there is Spain. A Spanish official said yesterday (Monday) that some foreign banks were refusing to lend to a group of Spanish banks. There was a liquidity freeze on some Spanish banks in the interbank market. Yesterday – although I’m not sure it eased investors’ fears – the German chancellor said Spain could make use of the 750bn-euro (£623bn; $917bn) rescue mechanism. In the twitchy world of eurozone rumours a lot of attention is being given to Spain.
The question is this: if the rescue mechanism is drawn upon will the sums be enough? It is inconceivable that Germany would be willing again to underwrite a further deal.
And then there are the austerity measures…