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Could another Treaty change be on the cards?

European leaders still bearing the scars of the tortuous ratification of the Lisbon Treaty are now having to contemplate the prospect of re-writing the rule-book to accommodate further fiscal integration of the beleaguered Eurozone.

German Foreign Minister Guido Westerwelle has said that Berlin believed all 27 EU member state leaders would need to convene next year to agree to a new Treaty.

This has caused alarm in Brussels. Treaty changes require ratification in each Member State – in some cases, a referendum is compulsory – in all cases, there will be a painful political process with numerous pitfalls on the way.   The Lisbon Treaty took eight years to ratify.

It seems that Germany believes a Treaty change is required for Eurobonds – something they are understandably reluctant to see introduced. The European Commission is expected to come up with proposals for Eurobonds later this year.

However, there is no reason why Eurobonds cannot be introduced through the “community method”. Of course, the community method requires enormous political will from the EU27.

It doesn’t help that the Commission is giving mixed messages. Commission President José Manuel Barroso has said the Commission is “open” to new Treaty changes but then went on to say at a high-level think tank event on Thursday this week that his 5-point Roadmap out of the crisis did not require a treaty change. He told the audience at the “Re-thinking Europe” event: “We can enhance growth without treaty change.”

But the devil is in the detail.

The five points in his plan – bailing out Greece, recapitalising banks, boosting the Eurozone rescue fund, pursuing growth policies, and building stronger economic governance – seem to be a reasonable response, but limits to the Commission’s competences will be increasingly tested.

Commission Vice President Joaquín Almunia went further and warned that the EU was too weak to go through another Treaty convention. As he put it: “We are not mature enough for Treaty change.”

Barroso spelt out his strategy at his annual State of the Union address at the end of September.  His plans are far-reaching, and he has clearly been stung by criticism that the solutions to the crisis have been piecemeal.

UK Prime Minister David Cameron wants the Eurozone to take the so-called “bazooka” approach – a one-off fix – instead of piecemeal measures. Barroso this week called it “getting ahead of the curve.”

The bazooka approach to dealing with the sovereign debt crisis is being applied to the financial services regulatory regime, including credit rating agencies and corporate governance. And he is deadly serious about his proposed financial transaction tax.

There is no real appetite among Europe’s leaders for Treaty changes – even in the UK where David Cameron resisted growing pressure from his own party to demand a referendum to repatriate some EU powers.

A referendum would be politically divisive in Germany too. It’s just a threat to ward off any attempts to bring in Eurobonds through the back door.

We shall have to wait until next week when leaders meet at the European Council and the Eurozone Summit to see whether Treaty changes are still seen as a realistic prospect.

– Kevin

Walking round Porto, Portugal’s second city, over a long weekend, one is struck by how little the country’s near bankrupt economy is affecting daily life on the street.

Porto - this might be as good as it gets

Restaurants on the riverfront overflow with visitors from all four corners of Europe, two shiny new cable cars ply their way up the steep hills leading off from the river, and a slick new metro whisks commuters from their homes in the outlying suburbs to the hustle and bustle of the business district.

Even the May Day parades, whilst as noisy as ever, seemed to fail to rouse much excitement on a sleepy Sunday morning.

And yet this is a country that has gone cap in hand to its fellow Eurozone members and the International Monetary Fund (IMF), with a bailout plan likely to total in the region of €80 billion.

Always one of Western Europe’s poorest countries, Portuguese citizens will very soon be hit with paying back a loan to their richer neighbours which they can probably ill-afford.

Whilst German taxpayers can therefore rest easy, the old and the soon-to-be old in the poorer districts of Porto must start to scrimp and save already as pensions look set to shrivel like the sardines on the tourists’ plates.

Meanwhile Porto’s lively student fraternity must fear for their future employment just as their local drinking holes must fear for their business.

New elections will be held in early June after the incumbent centre left government resigned its post following its failure to push its austerity package through Parliament.  Any incoming government will therefore face significant pressure not to introduce cuts – and yet further delay will only deepen Portugal’s troubles.

Is default a distinct possibility? And who will be next? Perhaps Belgium, the home of the EU institutions and currently without a government for a world record 11 months?

With countries seeming to fall like dominoes, it must be asked how long the Eurozone can continue to bail out ailing Member States without permanently damaging the Euro’s image both at home and abroad. Perhaps it is already too late. Certainly political will in Europe seems to be at breaking point already, and the end is not yet in sight.

Whatever happens, it is likely that the May Day parades on Portugal’s streets will be bigger and noisier next year.

– Rob

Sunday’s election in Finland which saw the True Finns party make substantial gains to become a potential “king-maker” in the country’s new government could well be a sign of things to come throughout the Eurozone.

A True Finn drinking some dodgy beer at The Lobby's bar of choice on Place Lux

The True Finns leader – presumably the truest Finn of them all – Timo Soini opposes the Portuguese bailout which will have to be partly funded by the Finnish taxpayer.

The party’s anti-immigrant stance has led them to be seen as far-right and “extremist” – an accusation which Mr Soini stringently denies – but make no mistake: this was coming.

Finland’s accession to the EU was preceeded by a referendum which saw “only” 56.9% say yes. Which of course means 43.1% said no.  A not insignificant percentage.

The yes vote was still higher than Sweden (52.8%, and a non-Eurozone country) but substantially lower than Austria (66.6%) .

When it came to joining the Eurozone however, there was no referendum in Finland, just as there wasn’t in many other Eurozone countries, and they may well be paying the price now.

After all, sooner or later there were going to be problems in one or more Eurozone countries, particularly when the Eurozone decided to invite the “PIGS” (Portgual, Italy, Greece, Spain) to join the party, and presumably, in the spirit of solidarity, the other countries would have to chip in to help out their Euro brethren.

And here’s the thing.  Explaining to the populace that they can use their currency when they’re on holiday on the Algarve = an easy win.  Explaining to the populace that any budgetary problems experienced by their partners will have to be paid for out of their own pocket = not so easy.

This is the crux of the Eurozone’s problems.  Solidarity does not come about because high-level politicians refer to it on a daily basis in Brussels or Helsinki.  Nor does it come about by spending two weeks abroad in the country in question.

Brussels – and in the case of the Euro, Frankfurt am Main – is often accused of being remote and centralised.  Perhaps now they are reaping what they and the political elite in the Member States sowed a decade ago.

– Rob

The news that Portugal has finally bitten the bullet and requested a bailout will surprise few, but the impact on the Eurozone as a whole – and particularly Spain – remains to be seen.

Historians may look back at this moment and consider it the end-game of the current Euro-crisis- the three countries that were always going to ask for a bail-out did, but that was the end of it.

Spain suffered but survived.  Italy hung on.  And Belgium finally got its act together.

This is the best-case scenario, but what actually does happen next is anyone’s guess.  In the short-term, will the bailouts be successful?  In the long-term – well, just who would want to join the Eurozone now?

As they say in the US, “all politics is local”, but this looks like one of the few trends which will successfully span the transatlantic divide.

At the end of the day, Chancellor Merkel is not elected by Portuguese citizens, and her shocking defeat in the Baden-Württemberg elections a few weeks back will focus Christian Democrat minds, meaning that Portugal can expect few favours from Europe’s paymaster in the weeks and months ahead.

Germany will pay, but it will get its money’s worth.  It has to. Make no mistake.

Further ahead, the question needs to be asked: will the Eurozone ever agree on a common fiscal policy?

The current crisis has demonstrated the folly of a “one size fits all” approach when it comes to a single monetary policy, stretching as it does from Finland to Faro, whilst fiscal policy remains a national comptetence.

It was worth a try, but the carrot hasn’t worked, so the stick needs to make a comeback.  Hence, if Spain is to be brought back on an even keel, the Eurozone needs to act now or risk being terminally stunted by its members on the periphery.

It won’t go down well in Stuttgart or Salerno, but the time has come for the Eurozone to put its money where its collective mouths are!

– Rob

The reluctance of German Chancellor Angela Merkel to help Greece has tarnished the image of Germany and Germans in the country of Aristotle, Plato, and feta cheese.

The coverage given by the German press regarding the need for an EU rescue plan for Greece has not improved relations between the two Eurozone Member States -witness the front page of the German magazine Focus in February which showed the famous Venus di Milo making an obscene gesture.

According to a poll published on 25 March by the Kappa Research Institute which questioned Greek citizens about their views on Germany, only 28.8% replied positively, which is very low when compared to the 78.4% recorded five years ago for a similar poll.

The German low cost airline Air Berlin recently announced that the company had noted a significant drop in the number of reservations for Greece, and on this evidence it seems that the crisis has created a real gap between the two countries and their populations.

Let’s hope that the agreement on an EU plan to help Greece, reached yesterday at the European Summit, will serve to reconcile our Greek and German friends.

– Denis

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German Euros (Euro background by Petr Kratochvil from http://www.publicdomainpictures.net)

Germany appeared to take a decisive step back from her traditional post-war role as paymaster of Europe today when Chancellor Angela Merkel issued harsh words on the prospect of a European bailout for the crippled Greek economy.

During the government’s debate on the 2010 budget she warned against premature European action which might not actually solve Greece’s problems in the long term and could also actually weaken the Euro further, and stated that a rash show of solidarity was not the right solution.

In addition she expressed her support for Finance Minister Wolfgang Schäuble’s idea of putting together an agreement which would be able to exclude future persistent offenders from the Eurozone as a last resort. According to her, current provisions are not sufficient to deal with a situation where a Eurozone country is on the brink of insolvency. She believes a new agreement is crucial for future cooperation.

This reluctance to pay out to Greece seems at odds with Germany’s usual role as financial martyr to the EU cause.  So is the Federal Republic’s long-term love affair with all things EU showing signs of fatigue?

Or is Angie merely trying to placate her public, who, during times of financial uncertainty at home, certainly don’t want to be dishing out the Euros to those abroad?!

Indeed, behind her stern stance towards a rapid rescue for Greece surely lies a genuine concern for and continued commitment to the success of the currency union.

Keine Panik, Germany hasn’t given up on us yet!

– Rhian

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It was bound to happen sooner or later.  The fact that it is Greece will surprise few, but the sheer extent of the deficit and debt – 12.7% and touching €300 billion respectively – will have come as a nasty shock to fellow eurozone members.

More grim news for ECB President Jean-Claude Trichet (Credit © European Union, 2010)

At last week’s Summit EU leaders raced to show solidarity with Greece but refused to be drawn on what exactly they would do.  Is a bail-out plan on the cards?  Will Greece be asked to leave the eurozone?  Will Germany have to dig into its ever-sparser pockets?

Greece has been accused of fiddling the books for the last few years, which may or may not be true, but what has been conveniently ignored is the contradiction at the heart of the Euro.  Whilst eurozone monetary policy is regulated en bloc from the cosy headquarters of the European Central Bank (ECB) in Frankfurt am Main – 2400km from Athens – fiscal policy remains the sole responsibility of individual Member States.

Inevitably then, Member States are in a position to rack up huge debts if they wish, but then cannot play around with interest rates to rectify the figure.  No-one is saying that EU Member States outside the eurozone are sitting pretty, but at least the Bank of England can respond to the UK’s own needs in a time of crisis.  Whilst Greece burns, other eurozone members are showing signs of recovery, but how should the ECB balance out this tricky equation?

Meanwhile, Greeks are out on the streets demanding a halt to planned government cuts.  The political heat is rising day-by-day, but let it not be said that this is not of the eurozone’s own making.

Meanwhile, eyes are already turning anxiously towards Spain, Portugal, Italy, and even France.  Who would want to join the single currency now?

– Rob

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The news that Iceland has submitted its application to join the EU has reopened the thorny debate over EU enlargement, whilst also demonstrating the EU’s considerable global appeal. Once a prosperous and proudly independent country, Iceland has been forced to seek sanctuary in the eurozone following the collapse of its banking system in the wake of the global economic crisis. That the eurozone equals economic stability is clear for all to see, and for the first time an accession bid reflects this notion above all else.

Of course, not everyone sees it this way. The UK continues to stand outside the eurozone but is not about to join for the simple reason that it prefers to regulate its own monetary policy from London – and not Frankfurt. But with a population of just over 60 million and a world class banking centre, it still carries significant clout. Iceland – population 320,000 – just does not have the necessary resources.

It is also widely accepted that Iceland’s accession will give few headaches to EU officials, at least in comparison with the current crop of candidates in the Balkans and the Black Sea region.  No doubt lessons have been painfully learnt following the premature accession of Romania and Bulgaria in 2007.

Moreover, the fact that Iceland has been a long-standing member of the European Economic Area (EEA) should facilitate its negotiations, and in reality it is at least 80% towards becoming a fully fledged EU member already.

There is a well-known “enlargement fatigue” in EU capitals – not surprising given the fact that the EU has more than doubled in size since 2004. But Iceland is small, inoffensive, and comes with little cultural baggage. Smaller than Luxembourg, it will still have its own Commissioner, and like many others of its size will probably punch above its weight in both the Parliament and the Council.

So Iceland has a lot to gain from accession and the EU will have its ego massaged, but the real test will concern the candidate countries to the south who pose a different range of problems altogether. Can Iceland become an EU Member State before the long-suffering Croats? We will have to wait and see.

– Rob

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