Wednesday 7 December 2016

Merkozy needs to get steps right in time for euro dance-off

Like the North's peace process, saving the single currency is all about choreography but the Franco-German leaders have tripped up already

Published 04/12/2011 | 05:00

MAYBE they should have sent for Gerry Adams and Peter Robinson? I have in the past remarked, half-jokingly, on similarities between the Northern peace process and the efforts to save the euro.

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Now, I am not sure that it was even a half joke. Last week, the phrase, "It all depends on sequencing," leapt from the pages.

Remember "sequencing?"

It was the core -- and the bane -- of the peace process. In what order should things be done? Power-sharing before guns, or guns before power-sharing, and all that tiresome stuff.

At one point a frustrated David Trimble suggested jumping together, like Butch Cassidy and the Sundance Kid, and then found that Sundance Adams wasn't with him.

This time, the word came from, of all people, Mario Draghi, president of the European Central Bank. It looks like Mr Draghi is prepared to jump, but he needs others to jump first.

In his case, the jump will probably be much larger purchases of the bonds issued by governments when they borrow money. The ECB has been keeping rates in the market below ridiculous levels with its existing purchases of Italian and Spanish bonds, but it

'In the midst of such a crisis one doubts that the French spend much time thinking about Irish corporation tax -- so why bring it up?'

would need to do much more if it were to get rates down to affordable levels for new borrowings.

Between them, Italy and Spain have to borrow around €500bn next year. If they cannot raise the fresh cash, we have the mother of all defaults, and perhaps the mother of all currency collapses.

This is what sparked my original comparison with the North: as was the case there, everyone in Europe knows what needs to be done to save the euro from disaster, but they cannot agree on the terms, or the sequencing.

The peace process took the best part of 20 years from the general acceptance of what was required to the actual signing of the St Andrews agreement. They could afford to take that long because, really, there was not that much pressure on any of the participants, despite all their blather about human life and so on.

Europe might take just as long, if it could, but in the last few weeks the pressure became intolerable. The collapse of the euro moved from being a possibility to a probability.

Companies admitted they were making contingency plans. Last Thursday, Bloxham Stockbrokers in Dublin briefed journalists on what the consequences might be. The UK financial regulator advised British banks to prepare for the worst (although that might have been a subtle attempt to apply more pressure to the eurozone authorities).

German politicians in particular will be glad of the pressure. It finally looks as if the sequencing and choreography are in place but they are going to have trouble explaining it to the ordinary man in the strasse.

Tomorrow morning Chancellor Merkel goes to Paris and the de facto "Merkozy" joint presidency of Europe will make its proposals for next weekend's summit.

Mr Sarkozy made a "landmark" speech on Thursday last and Dr Merkel gave hers the following day. They were singing off the same hymn sheet, but one had to listen carefully to the tune.

Each has shifted key. The French concession is that there will be moves to create a legal fiscal union through changes to the Lisbon Treaty -- although Paris still has reservations about the degree of enforcement from the EU institutions in Brussels.

The German concession is that the European Central Bank will write a blank cheque to stabilise debt markets, once the proposal for treaty change is accepted -- but they continue to have grave reservations about the size of the cheque, and how precisely it will be used.

That is what Dr Merkel has to try to explain. Her difficulty is that the first thing which will happen -- greater ECB intervention -- is the thing Germans dislike most, whereas treaty change and a stronger fiscal union might take years to achieve.

Which, of course, is also unfortunate for the Irish Government. A constant rumbling debate about greater eurozone harmonisation is the last thing it wants, against a background of bailout budgets -- which, the ESRI says, will cost an average €7,000 per household over the next four years.

Still, they might reasonably have expected that trouble would not start from day one. But it has, with Mr Sarkozy's reference to unfair tax competition in his landmark speech.

The ability of Merkozy to dig unnecessary holes for themselves or others is truly breathtaking. In the midst of such a crisis one doubts that the French spend much time thinking about Irish corporation tax -- so why bring it up?

All the comment achieved was to make it more difficult for the Irish Government to do what France and Germany want -- and indeed what the euro needs. They may have planned the choreography but, on past form, these two could still fall flat on their faces at the summit dance.

Sunday Indo Business

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