The eagerly awaited summit between French President Nicolas Sarkozy and German Chancellor Angela Merkel has stirred a lukewarm reaction in France, and added to the perception that the eurozone’s two powerhouses have little appetite for bold moves.
Long before the leaders of France and Germany faced the press at the end of anxiously awaited talks in Paris, there was a sense that anything short of a joint backing for “eurobonds” would have failed to impress restless markets.
Seeking to cushion the inevitable disappointment, the entourage of German Chancellor Angela Merkel had rushed to clarify ahead of the meeting on Tuesday that eurobonds – a term used to describe debt jointly guaranteed by all 17 eurozone members, which analysts say could solve the liquidity problem of the bloc’s weaker members – were simply not on the table.
Predictably, markets reacted coolly when the French and German leaders duly ruled out the option, at least for the near future.
Appearing to kowtow to Merkel, French President Nicolas Sarkozy said the much-mooted eurobonds – which Italy’s finance minister, Giulio Tremonti, has described as the “master solution” to Europe’s debt crisis – should be the culmination of a process of deeper integration, not the preamble.
Nor was there any mention of plans to dramatically expand Europe’s revamped bailout fund, widely regarded as the only other move liable to calm jittery markets.
Instead, the modest measures that were unveiled soon sparked talk of a “mini-summit” in France, as well as relief in Germany that Merkel hadn’t committed her country to shouldering the debt of Europe’s worst off.
Small step forward, big step backwards
As European shares slipped soon after the close of the summit, Sarkozy’s would-be challengers in next year’s presidential election hurried to take a jab at the French president.
François Hollande, the frontrunner in the forthcoming Socialist primaries, described the decision to ditch eurobonds as a “big step backwards”, though acknowledging that Sarkozy had taken “a small step forward” by backing stronger governance of the eurozone.
His main challenger for the Socialist presidential nomination, party leader Martine Aubry, said she had expected the leaders to “announce plans to double Europe’s bailout fund and measures to restart growth,” while also deploring Sarkozy’s failure to press for greater regulation of the financial system.
Arnaud Montebourg, another would-be Socialist nominee, said the summit smacked of an “avowal of impotence”.
Centrist parties stuck to a more cautious line, praising calls for a tax on financial transactions and for the adoption of a so-called “golden rule” on balanced budgets, while also regretting the failure to bring the financial industry under control.
Overall, critics said plans to strengthen cooperation on economic policy were encouraging, but lacked scope and specifics.
Sarkozy and Merkel proposed that eurozone leaders meet twice a year to coordinate economic policies across the 17-member bloc. The meetings would be chaired by Herman Van Rompuy, who is also the current president of the 27-member European Council.
“To think Van Rompuy could run the eurozone’s economy with two yearly meetings is scarcely credible,” said Moncef Cheikh Rouhou, a professor of economics at the Paris-based business school HEC, in an interview with FRANCE 24.
Hostages to markets
For politicians accustomed to being blamed for preferring short-term fixes to long-term solutions, the criticism aimed at Sarkozy and Merkel may have seemed a little rich.
According to Cheikh Rouhou, some of the criticism had to do with differing perceptions of the actual purpose of the summit: while investors were hoping for a quick fix to the recent market havoc, others were expecting medium- or long-term solutions to Europe’s debt crisis.
“The markets’ reasoning is that when there is a fire somewhere, you can’t just announce you’re building a fire station,” he said.
The anxiously awaited summit followed a week of jittery trading on global markets sparked by rumours France was about to follow the US in losing its coveted triple-A credit rating. It was also clouded by news that growth had ground to a near-halt across the eurozone, casting further doubt on the bloc’s ability to grow its way out of debt.
The mounting fear of ratings agencies and seemingly erratic markets appeared to weigh on Sarkozy and Merkel as they pressed calls for stricter budgetary discipline and steered clear of steps to tighten financial regulation.
“The triple-A religion means governments are too scared to talk about the necessary regulation,” said Cheikh Rouhou, referring to politicians’ increasingly desperate moves to protect their countries’ credit rating.
Economists have also warned that the drastic budget cuts demanded by ratings agencies risk pushing the eurozone’s sputtering economies over the edge, spreading further alarm among restless investors.
As Christine Lagarde, the head of the International Monetary Fund, wrote in an op-ed published Monday on the Financial Times: “We should remember that markets can be of two minds: while they dislike high public debt – and may applaud sharp fiscal consolidation – as we saw last week they dislike low or negative growth even more.”
Date created : 2011-08-17