Sarkozy: “We have to converge. The status quo is impossible.”

Frau Bundeskanzlerin and the French President, Nicolas Sarkozy, emerged from their bunker yesterday to call for “true economic governance” for the eurozone.  As Derek Scally reports in the Irish Times

Mr Sarkozy and Chancellor Angela Merkel presented joint proposals for further reforms and euro zone integration after meeting in Paris yesterday, calling them essential steps to end ongoing instability.

“To strengthen the euro as our common currency, it is clear that we will need a closer interlocking of economic and financial policies in the euro zone,” said Dr Merkel.

“Germany and France see the need to demonstrate this by being at the forefront.” As well as a proposal to co-ordinate corporate tax in France and Germany, the two leaders called for agreement within a year on budget debt ceilings to be anchored in national constitutions. The two leaders proposed an EU financial transaction tax and twice-yearly meetings of a new body supervising euro zone economic governance.

“This governing body should meet twice a year – more regularly if necessary,” said Mr Sarkozy, proposing European Council president Herman Van Rompuy as its first head.

The French and German leaders dismissed talk of a common eurobond, though the French leader left the door open for later. “Perhaps we can talk about eurobonds at the end of European integration but not at the beginning,” said Mr Sarkozy. [added emphasis]

Well, it’s one answer to “the political trilemma.”  But one which fails to address the “shrinking of the democratic space at national level”.

Karl Whelan assesses the proposals here

The proposals for constitutional debt and deficit limits do little to address the current debt crisis and store up many future problems.

And as BBC Europe editor Gavin Hewitt notes

Fiscal union – the coordination of tax and spending – has not yet arrived but it has moved a giant step closer.

Sure it was just a proposal but there was plenty of detail. This new government, according to President Nicolas Sarkozy, “will be made up of heads of state and government that will meet twice a year and more often if necessary. It will elect a stable president for two and a half years.” The eurozone and the EU can still give the appearance that it is a Franco-German enterprise.

As he goes on to point out [added quote]

Again it is all about showing that France and Germany are prepared to work together to protect the euro.

But fierce resistance will lie ahead, particularly from financial institutions which are lined up to take a hit on their lending to Greece. The City of London, which is Europe’s main financial centre, will be particularly wary. Ireland will insist that any new financial transaction tax applies to all 27 members of the European Union. The UK will oppose this.

What was on offer yesterday was a long-term political plan intended to show closer integration of the eurozone. What it did not do was to address the current debt crisis that so unnerves investors.

From a comment piece by Derek Scally in the Irish Times

Now some want to have another go in the euro zone at automatic sanctions for breaches of the stability pact, rather than leaving them to the political discretion of European Council leaders.

Yesterday’s proposal for a deficit ceiling and pan-EU debt brake will go some way to satisfying those demands.

The second point was equally clear: yesterday’s Franco-German proposals are, as Sarkozy put it, a programme to “break with old habits” of deficit spending that have crippled the euro zone.

To do that, France and Germany believe it will be necessary for euro zone members to break with other cherished European habits: fiscal and budgetary sovereignty.

So how much influence will yesterday’s Franco-German proposals have over any future EU-wide agreement?

“With Italy and Spain under the microscope now,” said one senior government official in Berlin, “we feel we have the negotiating advantage on our side this time.”

But as Kevin O’Rourke asks at The Irish Economy blog

As per Derek Scally in the Irish Times, is this a taste of things to come, or much ado about nothing?

What are the chances of the Irish government winning such a referendum?

[Europe is still sexy! – Ed]  Of course it is.

And, as I’ve been saying, for supporters of the “European Project”, the options are stark.

And when it’s that serious, you have to lie…

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  • Noonan is relaxed about the implications (http://www.rte.ie/news/2011/0817/eu.html) but I thought this was funny about the proposed Financial Transaction Tax which he reckons, as Dublin’s financial services sector competes with London’s, would have to be brought in across all 27 Member States and not just in eurozone nations:

    “We can’t have a situation where there is a transaction tax in Dublin and there is no transaction tax in London.”

    Good luck at imposing that one.

  • Pete Baker

    oneill

    Gavin Hewitt had something to say about that.

    But fierce resistance will lie ahead, particularly from financial institutions which are lined up to take a hit on their lending to Greece. The City of London, which is Europe’s main financial centre, will be particularly wary. Ireland will insist that any new financial transaction tax applies to all 27 members of the European Union. The UK will oppose this.

  • Pete Baker

    Actually, I should have left that quote from Gavin Hewitt in the original post.

    I’ve added it now.

  • DC

    “We can’t have a situation where there is a transaction tax in Dublin and there is no transaction tax in London.”

    Why not? Sure does Dublin not run a corporation tax rate so low that it competes with, if not out-competes, third world / developing countries for FDI i.e the ole foreign direct investment. Same kind of thing then?

    However, that said a transaction tax should be imposed and those banks that are nationalised in Britain should be properly nationalised, than psuedo nationalised. Because I’m beginning to understand now that public owernship isn’t just a means to an end, it is actually an ‘end’ in itself, for the simple reason that if these banks were properly nationalised and under proper public ownership none of us today would be debating the ridiculousness of those bankers’ bonuses of bailed out banks, because government would be in control and have the power to control this sort of behaviour!

    What we have at the moment is a completely disgraceful situation of bankers bonuses being paid out despite some of these banks being in fact technically bankrupt and only psuedo-nationalised. If they were properly nationalised, bonuses running into the millions would not be paid out into personal accounts of these certain CEOs etc, but instead returned to the bank to help repair the hole in its balance sheet and to reduce taxpayer liabilities in the process.

    Remember – power is nothing without control.

    In relation to Europe and ‘debt’ it needs to remember where the debt came from, there really isn’t a proper ‘debt crisis’. It’s only a debt crisis because private banking debt was brought over onto public sector books, end of. Privatising profits and socialising losses.

    Once politicians have the balls to fess up to this fact they should be looking to go after all those that profited out of the credit bubble which they created – the culprits – financial services the CEOs, such as Hank Paulson, Fred the Shred, Eric Daniels etc; because, how can it be right that they are able to pocket privately bonuses into the millions if not billions and then not have to repay any of this money after they bankrupted their own banks in the process?

    Europe needs to emulate Britain’s Serious Organised Crime Agency – SOCA – an EU SOCA should be deployed to recapture in part those bonuses earned between say 2002-08 say by freezing their banks accounts and shares and assets.

    Debt crisis? What debt crisis – austerity to normality.

  • Before that meeting, the French, fearing losing their AAA rating, were putting the Germans under pressure to accept Eurobonds. Meanwhile, politicians from all over Europe were saying that agreement to the issue of Eurobonds was the only way to put the Euro onto a stable financial footing.

    Having firmly ruled out Eurobonds, the Germans and the French are now promoting fiscal union as some kind of new saviour. One can just imagine the scene, every time a budget is negotiated by European leaders. At best, it is a recipe for disastrous relations between European politicians. At worst, it is unworkable.

  • DC

    Allow me to paraphrase David Cameron and his utterances on the riots, the same approach is needed for the bankers:

    And to the lawless minority, the criminals who’ve taken what they can get. I say this: We will track you down, we will find you, we will charge you, we will punish you. You will pay for what you have done.

    (And Murdoch and Coulson of course!)

  • huntsman

    The bank tax is the latest attempt by France to stave off having to take their proper hit for bad lending. The French banks loaned careflessly to Greece and other countries and when the burden first fell soley on the sovereign side, they were hardline in seeking countries to pony up. Now that it seems impossible for these countries to cover their debts, the French want to spread the burden from their feckless banks to all Euro banks. It is ridiculous and has absolutely no chance of being accepted. The recent summit of German and French leaders probably sealed the fate of the Euro and it is now destined to the dustbin of history and good ridence. Watch the next few weeks as history is made.

  • Greenflag

    @DC ,

    ‘And to the lawless minority, the criminals who’ve taken what they can get. I say this: We will track you down, we will find you, we will charge you, we will punish you. You will pay for what you have done.’

    Unless your name is Goldman Sachs or Bank of America or Citgroup or Deutsche Bank or UBS or Moody’s or Standard &Poors or AIG ( in which case all the elected politicians in London or Washington or Dublin will not raise a finger no matter how much you ‘legally ‘ steal from your ‘prey’ 🙁

    But now the I read the predators of the financial services sector are now predating on each other as government wipes

    The American International Group sued Bank of America on Monday over hundreds of mortgage-backed securities, adding to the surge of investors seeking compensation for the troubled mortgages that led to the financial crisis.

    The suit seeks to recover more than $10 billion in losses on $28 billion of investments, in possibly the largest mortgage-security-related action filed by a single investor.

    It claims that Bank of America and its Merrill Lynch and Countrywide Financial units misrepresented the quality of the mortgages placed in securities and sold to investors, according to three people with knowledge of the complaint.

    A.I.G., still largely taxpayer-owned as a result of its 2008 government bailout, is among a growing group of investors pursuing private lawsuits because they believe banks misled them into buying risky securities during the housing boom. At least 90 suits related to mortgage bonds have been filed, demanding at least $197 billion, according to McCarthy Lawyer Links, a legal consulting firm. A.I.G. is preparing similar suits against other large financial institutions including Goldman Sachs, JPMorgan Chase and Deutsche Bank, said the people with knowledge of the complaint, as part of a litigation strategy aimed at recovering some of the billions in losses the insurer sustained during the financial crisis.

    The private actions stand in stark contrast to the few credit crisis cases brought by the Justice Department, which is wrapping up many of its inquiries into big banks without filing any charges. The lack of prosecutions — the Justice Department has brought three cases against employees at large financial companies and none against executives at large banks — has left private litigants, mainly investors and consumers, standing more or less alone in trying to hold financial parties accountable.

    The full article for those interested at how the world’s most powerful government has succumbed to ‘banksters rule’ at

    http://www.nytimes.com/2011/08/08/business/aig-to-sue-bank-of-america-over-mortgage-bonds.html?pagewanted=all