Monday, 5 December 2011

Merkozy and the New Europe

In the wake of the Eurozone crisis, the Franco-German alliance may well be stone enough to force the next step for the EU

Earlier today Angela Merkel and Nicholas Sarkozy met over lunch in Paris to discuss the angle from which they will present their position to a meeting of EU leaders on Thursday. Hopes of a Franco-German masterplan to bring the Eurozone to heel has rallied markets and shares of European banks. Merkel wants Brussels to hold veto power over the budgets of Eurozone members, Sarkozy wants the power of sanctions against those who flout EU guidelines like Greece and Italy have done. Together they present the face of a Brussels ready to crush the Eurozone crisis in a fist of fiscal unity. 

Together France and Germany present the strongest alliance of political and economic might in Europe, so significant that the third strongest economy, Britain, has been all-but ignored in the negotiations. When Cameron jetted to France to meet Sarkozy and convince him not to mention the possibility of a new EU treaty, the afternoon session was downgraded to a working lunch, and his proposition rejected. 

This powerful alliance will go to the EU summit from a position of strength. Germany is the strongest and fastest growing economy in Europe, and France has managed to fend off economic collapse in the face of toxic debts from Italy and Spain. Their differences (chiefly between a French preference for political control by national governments and German preference of technocratic control by Brussels) have been united under a policy of automatic sanctions for governments breaching EU debt guidelines, watched over by the European Court and only capable of being overturned by a weighted majority of EU nations. This weight will go much the same way as political and economic clout, into the hands of Merkozy.

Although Merkel and Sarkozy are pushing for a new EU treaty, which will likely have far more far-reaching terms than simply fiscal unity, there has been the suggestion that a Eurozone-only treaty will be signed. The future of the EU may well turn on which path this takes. Should the EU treaty go forwards, it will unite the EU as a whole, even if the Eurozone is brought together more specifically. However, Eurosceptic states such as Britain, Poland and the Czech Republic may baulk at the idea of another step forwards in power for Brussels, and face popular rebellion from nationalist elements. David Cameron has already faced an uprising from his own party on the EU, and a new EU treaty, no matter what it may involve, may force his ruling coalition into civil war.

If the agreement is only between Eurozone members, the Germans may be tempted to push the agreement much further than they would have done if they'd have had to convince all 27 states. Germany has such dominance over the 17 economies of the Eurozone they they would have the capability to bully the smaller states into line. Even France may be forced to toe the line, even if they disagree, facing as they are the threat of Spain's economic woes. Just like Cameron was told to butt out of Eurozone business two months ago, his protestations at the status of Britain's economic exclusion will fall on deaf ears to a currency block he has so openly rejected and criticised. Without having to deal with the concerns of the Eurosceptic powers, Germany would have the chance to unify the Eurozone far more extensively under Brussels. This has the potential of creating a two-tier EU between the superstate of the Eurozone, and associated states of the greater EU.

Considering the threat of economic exclusion, Britain may end up supporting the wider treaty, of course with extensive opt-outs. David Cameron may have to rely on his Liberal Democrat coalition partners, and an unlikely helping hand from the opposition of Labour, in a battle against his own party. The civil war between Eurosceptics tempted by the nationalists of UKIP and the pragmatists more firmly in partnership with the Liberal Democrats could cause a rift capable of toppling the ruling coalition. Cameron will have to tread very carefully on the line between his country's nationalists and the imposing front of the Franco-German alliance in order to bring Britain through this crisis politically unscathed. 

The EU summit on Friday marks a major turning point on both the Eurozone crisis and the future of the EU, one which will be watched very keenly by the world markets and Europe's neighbouring world powers.

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