Angela Merkel: “now we need more in common in our economic policies…”

EU leaders met in Brussels last week, for their last summit of 2010, and agreed the text of a “narrow revision” to the Lisbon Treaty – the conclusions of the European Council (16-17 December 2010) [pdf file].

In Taoiseach Brian Cowen’s view, “There isn’t a change of competence or a transfer of competence, so our strong view is that it is compatible with the Constitution.”  That would be without the need for a referendum.  And from the same Irish Times report

On the effort to shore up the euro zone, Mr Cowen said it was important to examine any new measures in a careful and discreet way.

“Given the hypersensitivity of markets, whether we believe they are rational or not, is not the point.” He dismissed again the suggestion of Fine Gael leader Enda Kenny that a “haircut” of up to €17 billion should be imposed on the holders of €2 billion in unguaranteed senior bank bonds.

“We are not in a position to have unilateral action being taken as was suggested yesterday by leader of the Opposition. That was put on table during discussions.

“It’s clear that wider contagion, and other effects, would have had to be taken into account for Ireland. We need to internalise that and understand that and also recognise that what’s in our interest is a stable euro area.” [added emphasis]

But, as the BBC’s Europe editor Gavin Hewitt points out

But the summit has not addressed the fundamentals. Even those countries like Greece and Ireland that have been bailed out remain in dire straits. While embracing new austerity measures – to reduce their deficits – how will they find the growth to both repay the loans and to reduce their debt loads?

Many economists don’t believe the sums add up. They believe the debt loads are unsustainable. And then they cast an eye over other countries’ spreadsheets and question how they will meet their funding needs for 2011.

Meanwhile the gulf between the weaker economies and Germany’s only grows. Although there will be further banking stress tests in February it is apparent that many banks remain nervous over their exposure to these countries on the periphery of the eurozone. And although countries like Spain and Portugal are unveiling structural reforms, like in the labour market, they come very late in the day. They will take time to have an impact and perhaps increase competitiveness.

The Irish Times noted the reaction in Germany

German financial market analysts were not impressed with the summit results, with one calling it “another missed opportunity”.

“European leaders failed to address the issue of debt sustainability and possible insolvency problems prior to 2013,” said Carsten Brzeski of ING bank. “Debt restructuring, a common euro zone bond or an increase of the EFSF? None of these issues have been addressed. But they need to be.”

BNP Paribas analyst Ken Wattret said the measures were “piecemeal, unconvincing and reactive rather than pre-emptive”. “This is going to have to change if confidence is to be restored,” he said.

What next for the eurozone?  A couple of reports suggest a potential path…  From one Irish Times report

This (deal) goes a step in the direction of economic government … now we need more in common in our economic policies,” [German Chancellor Angela Merkel] said. Alongside stable state finances it was important, she said, that countries “step by step, in a long process” develop common economic policies. [added emphasis]

What the EU economics and monetary affairs Commissioner Olli Rehn called “the decade of fundamental reforms.”

And, again from the Irish Times

European leaders are deeply divided over the “euro bonds” concept, with Dr Merkel prime among the opponents. The question surfaced early at the summit dinner after leaders agreed a narrow revision to the Lisbon Treaty.

Although Dr Merkel has said the concept is off the agenda, both she and Mr Sarkozy said a week ago that euro countries must achieve deeper economic and budgetary harmonisation before such bonds could be issued.

The French leader returned to the theme of convergence yesterday, saying single currency governments should adopt deeper economic governance measures. “I don’t think you can have the lowest corporate taxes in the euro zone and then transfer your debt,” he said. “You can’t say I’m sovereign on receipts but for debts I can transfer them to a higher level. It makes no sense.”

I’m not sure how that will go down on the Clapham omnibus Clontarf dart…

But, Frau Bundeskanzerlin, history is knocking…