Tuesday 30 August 2011

Eurozone: Juncker and Rostowski in European Parliament

For the first blog post we found texts with main points: Eurozone: Trichet and Rehn in European Parliament.

The second part proved trickier.

I found nothing on the Council's web pages on the euro group or the 'salle de presse' of the prime minister of Luxembourg, Jean-Claude Juncker, with regard to the meeting in the European Parliament yesterday.

They announced the coming participation of finance minister Jacek Rostowski in the ECON meeting in the European Parliament, but I do not find what he actually said on the web page of the Polish presidency of the Council of the European Union.


Let us see what media representatives have caught of the contributions by Juncker and Rostowski.

Honor Mahony on EUbserver noted that the chairman of the euro group Jean-Claude Juncker was hopeful of a solution to the Finnish demands for collateral linked to the second Greek rescue package: Rehn questions political appetite for eurobonds [near end of article].

The Polish finance minister Rostowski saw the ”six-pack” of legislative proposals for improved economic governance as a litmus test for the EU. - It is a priority for the Polish presidency.

According to EurActiv, Rostowski hailed the interventions by the European Central Bank for saving Europe: MEPs rally behind ECB as savior of euro.

On the EUobserver, Andrew Rettman quoted an interview in Gazeta Wyborcza: Polish finance minister says Europe at risk of ”collapse”. European, including German elites have the choice between the survival of the euro and the collapse of Europe. A bigger EFSF and deeper integration are necessary for the eurozone. Finland's requirement of collateral is irresponsible.

Rostowski described fiscal irresponsibility in the South and lack of solidarity in the North of Europe as dangerous populism.

The European Voice has more on Juncker's and Rehn's words about the deal on Greek collateral: Trichet calls for speedy action on bail-out deal.

The blogging Swedish MEP Gunnar Hökmark, who is a member of the EP ECON committee, saw the need for stricter budget discipline and reforms aimed at increasing market dynamics and real economic growth: Pressmeddelande: Tillväxt är det enda som kan ta Europa ur krisen.

(As we saw in the previous post, commissioner Olli Rehn spoke about the need for qualitative, structural reforms for growth, competitiveness and jobs.)


For continuing discussion about the eurozone challenges and other European issues, follow the new articles from 841 euroblogs on multilingual Bloggingportal.eu, an important part of the European public space.

I invite you to read and to discuss on my four blogs: Grahnlaw (EN), Grahnblawg (SV), Eurooppaoikeus (FI) and Grahnlaw Suomi Finland (EN SV FI).

I am also active on Twitter (although I can follow new people in return only when slots become available) and Facebook.

Ralf Grahn

Monday 29 August 2011

Jackson Hole calling US and eurozone politicians

Yesterday, I presented the speeches by the Federal Reserve chairman Ben S. Bernanke and the ECB chief Jean-Claude Trichet in the blog post (in Swedish) USA och Europa: Bernanke och Trichet i Jackson Hole, as well as the message addressed to the eurozone by the IMF chief Christine Lagarde: Jackson Hole: IMF Lagarde talking to Europe.

Jackson Hole calling politicians

The central bankers and the leaders of the international financial institutions want the politicians in the USA and Europe to get their act together, Reuters reports: Analysis: Economic leaders fear policy paralysis (28 August 2011).

The Wall Street Journal chips in with: Central Bankers Worry Economy Still in Peril (29 August 2011).

A Financial Times editorial praised Lagarde for starting a debate on how to get rid of excessive debt in the USA and in Europe, but criticised her willingness to send the tab to the taxpayers: Lagarde spells out ugly truth on debt (28 August 2011).

The message from Jackson Hole to politicians is that monetary policy alone can't keep the global expansion going, according to Bloomberg: Central Bankers Urge Governments on Expansion (29 August 2011).

I am still hoping to find comments on Lagarde's message to the eurozone leaders:

So Europe must recommit credibly to a common vision, and it needs to be built on solid foundations—including, for example, fiscal rules that actually work.

European Parliament

The European Parliament committee on economic and monetary affairs (ECON) meets today to discuss the sovereign debt markets with the Jean-Claud Trichet and about restoring market confidence with Jean-Claude Juncker, Jacek Rostowski and Olli Rehn (Draft agenda).

A few days ago, ECON chairwoman Sharon Bowles (ALDE) published an article about the challenges on Public Service Europe. The costs of a failure of the euro are simply too huge: Bowles: 'Saving the euro is paramount' (26 August 2011).

According to the Swedish ECON committee member Gunnar Hökmark (EPP), the continuing accumulation of debt did not solve the debt crisis. Too little has been done to enhance competitiveness and to create durable growth: En höst som måste vända utvecklingen (28 August 2011).


For continuing discussion about the eurozone challenges and other European issues, follow the new articles from 841 euroblogs on multilingual Bloggingportal.eu, an important part of the European public space. Look for the tags 'eurozone' and competitiveness'.

In addition to my four blogs (links in margin), I am active on Twitter and Facebook.

Ralf Grahn

Sunday 28 August 2011

Jackson Hole: IMF Lagarde talking to Europe

After a period of writing about competitiveness from different angles including ICT prowess, I turned to the economic crisis in the eurozone. My later blog entries can be found through the post Eurozone: Whatever is needed, except...

Jackson Hole

This morning we return almost full circle. We look at the themes of competitiveness and technological advance (including Europe 2020 and the Digital Agenda) through the eyes of the guardians of monetary policy. What do the central bankers have to say to their neighbours, the politicians responsible for economic policy, about the preconditions for economic growth?

The annual Jackson Hole retreat of central bankers, policymakers and academics offers some clues.

Earlier today, I presented two speeches in the blog post (in Swedish) USA och Europa: Bernanke och Trichet i Jackson Hole.

I might as well link directly to the addresses:

Chairman Ben S. Bernanke, at the Federal Reserve Bank of Kansas City Economic Symposium, Jackson Hole, Wyoming, August 26, 2011: The Near- and Longer-Term Prospects for the U.S. Economy

The chairman of the European Central Bank (ECB) Jean Claude Trichet:

Setting priorities for long-term growth; Jackson Hole, U.S.A., 27 August 2011

Some (other) speeches at the Federal Reserve Bank of Kansas City Economic policy symposium in Jackson Hole, Wyoming, 25 to 27 August 2011 can be found here.

IMF Lagarde

The fresh managing director of the International Monetary Fund (IMF) Christine Lagarde spoke on the same panel as Trichet: Setting policy priorities for long-run growth. Her address can be found on the IMF web pages:

"Global Risks Are Rising, But There Is a Path to Recovery": Remarks at Jackson Hole; by Christine Lagarde, Managing Director, International Monetary Fund, Jackson Hole, August 27, 2011

According to Lagarde, the downside risks to the global economy are increasing:

Developments this summer have indicated that we are in a dangerous new phase. The stakes are clear: we risk seeing the fragile recovery derailed. So we must act now. It is a matter of vision, courage and timing. Decisive action will bolster the confidence that is required to restore and rebalance global growth.

Turning to the needed policies, Lagarde named the challenges:

Put simply, while fiscal consolidation remains an imperative, macroeconomic policies must support growth. Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery.

She proceeded to talk in fairly broad terms about Europe, the United States, the global dimension and conclusions.


Parochially, I opt for the section on Europe. Lagarde sent three key signals to European policy makers:

First, sovereign finances need to be sustainable. Such a strategy means more fiscal action and more financing. It does not necessarily mean drastic upfront belt-tightening—if countries address long-term fiscal risks like rising pension costs or healthcare spending, they will have more space in the short run to support growth and jobs. But without a credible financing path, fiscal adjustment will be doomed to fail. After all, deciding on a deficit path is one thing, getting the money to finance it is another. Sufficient financing can come from the private or official sector—including continued support from the ECB, with full backup of the euro area members.

Second, banks need urgent recapitalization. They must be strong enough to withstand the risks of sovereigns and weak growth. This is key to cutting the chains of contagion. If it is not addressed, we could easily see the further spread of economic weakness to core countries, or even a debilitating liquidity crisis. The most efficient solution would be mandatory substantial recapitalization—seeking private resources first, but using public funds if necessary. One option would be to mobilize EFSF or other European-wide funding to recapitalize banks directly, which would avoid placing even greater burdens on vulnerable sovereigns.

Third, Europe needs a common vision for its future. The current economic turmoil has exposed some serious flaws in the architecture of the eurozone, flaws that threaten the sustainability of the entire project. In such an atmosphere, there is no room for ambivalence about its future direction. An unclear or confused message will add to market uncertainty and magnify the eurozone’s economic tensions. So Europe must recommit credibly to a common vision, and it needs to be built on solid foundations—including, for example, fiscal rules that actually work.

Sustainable public finances, but not at breakneck speed, seems to be the message.

Update 28 August 2011 about 15 EET: I left it to readers to find Lagarde's messages. However, could not resist pointing out the greetings that Europe (= the eurozone) needs solid foundations, such as fiscal rules that actually work. What do you think she means?


For continuing discussion about the eurozone challenges and other European issues, follow the new articles from 841 euroblogs on multilingual Bloggingportal.eu, an important part of the European public space. Look for the tags 'eurozone' and competitiveness'.

In addition to my four blogs, I am active on Twitter and Facebook.

Ralf Grahn

Friday 26 August 2011

Eurozone: Citizens concerned

If the national governments want something better than the impending crash, why don't they get to grips with the issues of democratic empowerment and sufficient powers at European level?

This is where we stand today: Eurozone: A matter of common concern, a real concern for citizens and businesses alike.

According to Jacques Delors, the former president of the European Commission, the euro and Europe are on the brink of the abyss. Notre Europe has collected the interviews and media reactions: Jacques Delors face à la crise de l'euro.

In Le Taurillon, Nessim Znaïen highlighted some proposals by Delors in the interview published by Le Temps.

Spencer Kimball, on European Dialogue, stated that US, EU debt crisis escalates in the face of political gridlock.

The Green MEP Reinhardt Bütikofer cautiously speaks about the need for empowering the European Parliament in the management of the euro crisis.

The calculus of not saving the Euro goes beyond economics, but it is in fact a political decision, Maxime Larive wrote on the Foreign Policy Association blog.

The blog of the office of György Schöpflin MEP noted the threat of intergovernmentalism. The Franco-German plans to govern the euro are expressly designed to circumvent the Commission and the European Parliament. The pressure to reassert state-national interest over a European-level interest neglects and probably damages the EU’s conflict resolution function.

Come September, when, or rather if, the permanent bailout mechanism takes over the role of the ECB, we shall see whether these crisis measures are enough to save the euro, Finn Maigaard wrote on the Foreign Policy Association blog.

Finland insists on getting collateral for participating in the second Greek rescue package. Other eurozone governments have reacted and the markets are raising alarms, Peter Spiegel wrote on the FT Brussels blog.

The current crisis in Europe isn’t just a Greek or German or Irish or Portuguese problem, it’s a European one, Jason O'Mahony wrote.

Protesilaos Stavrou wrote that if things stay as they are then we will reach a dead end that will signal the start of the collapse of the euro and of everything that took decades to build. The blog post offers practical proposals on remedies for the systemic crisis.

The European Central Bank is forced to act as a fire department, because chancellor Merkel postpones the saving of the euro. After months of silence, the German president Christian Wulff finds nothing better to say than to criticise the independent ECB, Eric Bonse wrote on Lost in Europe (in German).

Laurence Boon, on Telos, explains that eurobonds are no miracle cure, but they could be a help on certain conditions.

Megan Green reasons that Eurobonds could work, but we'll probably never know. Throughout the euro crisis, EU leaders have repeatedly demonstrated that their top priority is their own national self-interest, despite the huge potential downside risks this poses to the common currency.

Although the European Union is formally a democracy, it does not act like one. We're in the middle of a massive crisis, but when it comes to the solutions, we are talking about national solutions to European problems, wrote The European Citizen.


If the national governments want something better, why don't they discuss politically legitimate government and sufficient solutions to European problems?

The new articles on 841 euroblogs are just one click away. Follow and participate in the discussion about the eurozone and other European issues on multilingual Bloggingportal.eu, an important part of the European public space.

Ralf Grahn

Thursday 25 August 2011

Eurozone: Friendly fire or collateral damage?

We continue monitoring the new era of European disintegration, especially in what is still known as a eurozone of 332 million inhabitants in 17 countries.

Yesterday, chancellor Angela Merkel noted how closely the break down of the euro was related to the fate of the whole European project:

Scheitert der Euro, steht das europäische Projekt insgesamt auf dem Spiel.

(Merkel's full ”Stabilitätsunion” speech in Magdeburg.)

The Financial Times tells us that the German Bundesbank opposes ECB bond buying (22 August), still. Spiegel Online International reports that president Christian Wulff has joined the prominent opponents in Germany: German President Questions Legality of ECB Bond Purchases (24 August 2011).

For good measure, the German Bundesbank criticised the decisions of the 21 July 2011 eurozone summit on the second Greek bail-out and the added flexibility of the EFSF, as well.

In the context of the second bail-out of Greece, in the blog post Eurozone issues collateral and honesty (24 August), we saw the eurozone summit statement and the following deal on collateral between Finland and Greece. The eurozone partners did not warm to footing the bill, but for the government of Finland it remained a question of how, not if, collateral will be given.

Peter Spiegel on the FT Brussels blog continued by asking [UPDATED] Will Finland sink the Greek bail-out? (24 August). Markets and market watchers were becoming jittery.

The Open Europe blog looked at positions taken by leading politicians, country by country: Collateral Thinking (24 August 2011).

(By the way, the populist True Finns (Perussuomalaiset) have just decided to call themselves The Finns in English.)

Ruth Berschens in Handelsblatt tells us today that the collateral for Finland is off the table. The headline sounds conclusive: Sicherheitspfand für Finnland ist vom Tisch (25 August). However, the euro area governments seem to be discussing real estate as collateral.

If they reach no positive outcome, the Greek bail-out may unravel, and with it the eurozone as we know it.

We could then be left wondering if the eurozone broke up and the EU declined through friendly fire or as collateral damage.


The new articles on 841 euroblogs are just one click away. Follow and participate in the discussion about the eurozone and other European issues on multilingual Bloggingportal.eu, an important part of the European public space.

Ralf Grahn

Wednesday 24 August 2011

Eurozone issues collateral and honesty

The Finnish government has (admittedly, because of domestic political weakness) consistently demanded collateral for the second bail-out of Greece. This precondition was, somewhat obscurely, recognised by the eurozone summit 21 July 2011.

Protesilaos Stavrou

The euroblogger Protesilaos Stavrou has written an interesting piece on the effect of the demands for collateral as a precondition for approval of the second bail-out of Greece: Demands for collaterals show lack of a collective spirit (24 August 2011).

Finland set the snowball rolling, so I wrote two blog posts about the root causes and the events in Finnish: Suomi näyttää: Euroalue on korttitalo (23 August) and Suomen Kreikka-vakuudet vastatuulessa: Mistä tämä kertoo? (24 August 2011). (Why not try machine translation?)

Eurozone summit

The government of Finland has, admittedly as a result of domestic electoral politics, set collateral as a precondition for participating in the second bail-out package for Greece.

Although preparation for and discussions in Euro Group and Council meetings remain murky for outsiders, these aspirations have been aired publicly long and often enough. They come as no surprise for the euro area partners.

The eurozone summit acknowledged this demand, although the language is less than crystal clear. See: Statement by the heads of state or government of the euro area and EU institutions; 21 July 2011; point 9:

9. Where appropriate, a collateral arrangement will be put in place so as to cover the risk arising to euro area Member States from their guarantees to the EFSF.

This agreement in principle was the basis for the deal between the Finnish and the Greek government, which the Ministry of Finance in Finland informed about in a 16 August 2011 press release (Finnish only).

The snowball effect and fears that the Greek rescue package could be delayed or even unravel, have suddenly led to a 'Nein' from Merkel and the need for new discussions to open the Gordian knot. For the government of Finland it is still a question of how, not if, collateral will be given.


Now, we should have the facts straight, in order to follow the next steps.

A few additional points.

I have little sympathy for populists who are keen to wreak havoc in the eurozone and consequently in the wider European and world economy, although I am far from certain that the structures of the eurozone are democratic and robust enough to succeed, or that the national political leaders are up to the challenges.

I understand that many people in the Mediterranean countries feel unkindly treated by less than generous remarks about their political system and national character.

However, the citizens and politicians in these countries need to take a deep and honest look in the mirror.

To put it crudely, can we expect European solidarity if citizens domestically cheat on each other through corruption or tax evasion?

Even if the lack of democracy and effectiveness at eurozone level are root causes of the euro area crisis, I would appreciate more reform-minded thinking from citizens in the weak eurozone countries, on how to enhance competitiveness, improve internal solidarity with regard to clientelism, tax-paying, corruption, governance, sustainable public finances etc. in order to embrace a brighter future in a globalising world and in Europe.



Follow and participate in the discussion about the eurozone and other European issues on multilingual Bloggingportal.eu, an important part of the European public space, with the new articles on 841 euroblogs just one click away.

Ralf Grahn

Monday 22 August 2011

Peter Spiegel (FT Brussels blog): Merkel-Sarkozy weaken Commission?

After Protesilaos Stavrou, we look at what another valued euroblogger wrote about the joint letter, or should we say letters, from the German chancellor Angela Merkel and the French president Nicolas Sarkozy to Herman Van Rompuy, the president of the European Council invited to come up with concrete proposals by October.

FT Brussels blog

On the FT Brussels blog, Peter Spiegel discussed the sidelining of the European Commission. Van Rompuy would chair the summits, aided by a new secretariat, and new analytical capacities would be created (to complement those of the Commission, the ECB and the IMF).

The intergovernmental approach would play into the hands of the governments of the bigger eurozone countries, like France and Germany.

Spiegel foresees some nasty institutional fights: Is the Sarko-Merkel plan anti-Commission? (18 August 2011).

Since then, Stanley Pignal has discussed the ideas of the Belgian acting finance minister Didier Reynders on eurozone reform, a finance minister for the euro area and eurobonds, on the FT Brussels blog: Reynders redux (19 August 2011).


I agree with the analysis about the intergovernmental thrust of the Franco-German letter, but the eurozone summits would undermine the Euro Group as well as the Commission.

When chancellor Merkel and president Sarkozy say that ”(t)he European Parliament, the European Commission and the national parliaments should be associated to this process in their respective capacities”, it looks like a polite way of telling them not to expect any crumbs from the table of the leaders of this silent coup.


Multilingual Bloggingportal.eu is an important part of the European public space, bringing you the new articles on 839 euroblogs.

Ralf Grahn

Sunday 21 August 2011

Spiegel Online International on eurozone crisis

It is annoying not to know if the joint, but divided Twin Peaks proposal is intended to bless us with a new ”economic government” (gouvernement économique FR) or just enhanced ”economic governance” (wirtschaftliche Steuerung DE) of the euro area.

Even if the key concept has proved slippery, I tried to evaluate the Franco-German proposals in the blog post Merkel-Sarkozy letter: My reading, part of an extended series about the euro crisis (Eurokrisen).

Let us compare notes with Spiegel Online International, about what the German chancellor Angela Merkel and the French president Nicolas Sarkozy proposed to Herman Van Rompuy, the president of the European Council invited to come up with concrete proposals by October.

Spiegel Online International

In the aftermath of the Paris summit, Stefan Kaiser on Spiegel Online International spoke about ”true economic government”, but found the exact meaning unclear. He interviewed professor Henrik Enderlein, who saw the proposal as an attempt to sideline Jean-Claude Juncker (the chairman of the informal Euro Group): What Will a European Economic Government Entail (17 August 2011).

The following day, German media comments harvested by Spiegel Online International were unclear about the contents and unsure of how helpful the proposals would be: 'Merkel-Sarkozy Plan Already On Shaky Footing' (18 August 2011).

Spiegel Online International looked at the state of the German coalition government: Will Merkel's Coalition Hinder Euro Rescue? (18 August 2011). The FDP welcomed the rejection of euro bonds, the introduction of a debt brake, greater competitiveness and stability. However, economic government or offering ”Brussels” more powers, tangled the nerves of many among the government parties.

If Merkel's coalition partners lap up the debt-brake, the plan is triggering massive resistance in southern eurozone countries. Stefan Simons and Carsten Volkery report in Spiegel Online that the difficulties to enact balanced-budget amendments start at home for president Sarkozy. Debt-brakes have been in place since the Maastricht Treaty, to what effect? See: The Great Debt Brake Swindle (18 August 2011).

For a quick overview, I recommend the Graphics Gallery about the global debt crisis offered by Der Spiegel, 18 slides including eurozone and US federal deficit figures.

Spiegel Online International takes a step back to gain a wider view of the European project. Roland Nelles contrasts the passion of ”The Federalist Papers” with the failure of citizens to engage for a better Europe: How to Get Europeans to Care about Europe (19 August 2011). The current

... intransparent, technocratic policymaking among leaders generates exactly the kind of dangerous Europe-fatigue that is helping the populist idiots win support.


The Paris summit taught us more about the limits of our current political leaders, than about the real challenges.

In my view, without real powers and real democracy at European level, our continent will remain ill equipped to enhance the security and the prosperity of its citizens in a volatile world.

With Dylan Thomas: Do not go gentle into that good night.

Follow the discussion about the future of Europe and the eurozone on Bloggingportal.eu, an important part of the European public sphere.

Ralf Grahn

Saturday 20 August 2011

Eurozone ”economic government” lost in translation?

Did the (Twin Peaks) ”economic government” for the eurozone get lost in translation?

For the blog post Eurozone: Our new ”economic government” I watched the video of the press conference at the Élysée Palace, in Paris. Based on what I heard and saw, I stated the novelty:

Both leaders describe their proposals as ”economic government” (gouvernement économique, Wirtschaftsregierung).

Since ”economic government” has been used mainly by the French, whereas others have usually spoken about ”economic governance”, I corroborated this novelty by referring to the German press release 'Deutschland und Frankreich für europäische Wirtschaftsregierung', although the link now leads to another press release headlined 'Deutschland und Frankreich für starken Euro', which seems to have airbrushed ”europäische Wirtschaftsregierung” by replacing it with ”starken Euro” (which, incidentally, is another cup of tea).

I did not see ”Wirtschafsregierung” in the text, either, so a minor act in Ministry of Truth style seems to have taken place at the German chancellor's office.


In the blog post Merkel and Sarkozy: Eurozone letter to Van Rompuy, I referred to the French version of the press conference text:

According to the Élysée version, president Sarkozy refers to the letter to Van Rompuy with the joint proposal for

...un véritable gouvernement économique de la zone euro. Ce gouvernement économique sera constitué du Conseil des chefs d'Etat et de gouvernement.

In the German transcript only Sarkozy's second ”gouvernement économique” is preserved as ”Wirtschaftsregierung”:

...eine wirtschaftspolitische Steuerung der Eurozone vorzusehen. Diese Wirtschaftsregierung besteht aus den Staats- und Regierungschefs.

According to the two transcripts (and part translations), chancellor Merkel does not use the term ”Wirtschaftsregierung”, so the the use of term seems to rest on the airbrushed press release.

Letter to Van Rompuy

As I noted and wondered in the blog post Merkel and Sarkozy letter: My reading, the different ”original” language versions of the joint letter to Herman Van Rompuy employ different terms.

- des réunions régulières des Chefs d'État et de Governement de la zone euro : ces sommets se tiendront deux fois par an si nécessaire des sessions extraordinaires seront convoquées. Ces sommets constitueront la pierre angulaire du nouveau gouvernement économique de la zone euro.

- Regelmässige Treffen der Staats- und Regierungschefs des Euro-Währungsgebiets: Diese Treffen werden zweimal pro Jahr und wenn nötig zu außerordentlichen Sitzungen einberufen und dienen als Eckpfeiler der verbesserten wirtschaftlichen Steuerung des Euro-Währungsgebiets.

English is hardly the source language, but the target language:
- Regular meetings of the euro area Heads of State and Government: these meetings will be convened twice a year and when necessary in extraordinary session to act as the cornerstone of the enhanced economic governance of the euro area.


Grandiloquent to speak about ”economic government” to begin with, given the substance and lack of real democratic legitimacy of the proposals, although heads of state or government, more easily than outside observers, might perceive railroading the other EU institutions and eurozone arrangements on a permanent basis as part of their higher calling.

We have a joint letter, but which version should president Van Rompuy and the rest of us read with regard to the crucial term?

Has ”economic government” reverted to ”economic governance” outside France and the French language?

To set the record straight, could the Ministry of Truth (Berlin branch office) offer guidance?


On multilingual Bloggingportal.eu you find the new posts from 839 euroblogs, including on the debt and economic crises in the eurozone.

Ralf Grahn

Friday 19 August 2011

Merkel-Sarkozy letter: My reading

In the blog post Merkel and Sarkozy: Eurozone letter to Van Rompuy you find links to the letter on two websites in three languages, as well as transcripts of the press conference and some press releases.

Here is a link to the letter in English, as posted on the presidential Élysée web portal.

A few lines into the text, we start to wonder when the French and German leaders were last updated about growth figures and events on the financial markets and stock exchanges, as well as sentiments:

In the last months, the Heads of State and Government of the euro area have taken all the necessary measures in order to preserve the stability of the economic and monetary union.

Merkel and Sarkozy refer to paragraph 16 of the declaration of heads of state or governement of the euro area and EU institutions (my addition, based on original) of 21 July 2011, which said:

16. We invite the President of the European Council, in close consultation with the President of the Commission and the President of the Eurogroup, to make concrete proposals by October on how to improve working methods and enhance crisis management in the euro area.

In other words, the declaration referred to recognised institutional players, without inciting member state activism, although the letter somehow leaves the reader with such an impression.

We should be grateful for every effective and democratic proposal to stop the worsening slide. Let us quit nit-picking in order to look at how France and Germany propose to strenghten further the governance of the euro area, in line with existing treaties.

Eurozone governance

Whereas the leaders spoke about ”economic government” in both French and German at the press conference, the letter more humbly refers to enhanced ”economic governance” of the euro area.

However, the French version uses ”gouvernement économique” whereas the German version resembles the English translation. Strange, when speaking about key concepts.

The Twin Peaks solution of two annual summits could hardly be more intergovernmental, although only the regularity and the special chairman are new in this ongoing coup d'état.

Having just wanted to set their leading role in concrete, the wish to reinforce the eurogroup of finance ministers sounds as reassuring as the first pronouncement about human rights following a military coup.

The leaders must doubt the analytical capacities of the Commission, the ECB and the IMF, since the new European Stability Mechanism ESM should be equipped with ”complementing” analytical capacities in particular as regards debt and capital markets analysis. No prizes for guessing if transparency and accountability would decrease, or the ”unseen hand” of political remote control from the zone's main capitals increase.

Market reactions have shown that the proposals are seen as ineffective, but the more I think about them, the more I find them harmful as well.

Constitutional debt-brake

Merkel and Sarkozy propose a mandatory constitutional debt-brake for every euro area country. Germany already has one, and Sarkozy is trying to rally support for an internal balanced budget rule in France.

The member states are already internationally bound by the Stability and Growth Pact (1997), but how many of them are willingly going to enshrine such a rigid and permanent rule internally?

Although I am a firm supporter of sustainable public finances, hard and fast rules make bad law.

What happens when one or more euro area parliaments refuse to obey the diktat?

It sounds pompous, but essentially the euro area states have politically agreed to the Ecofin recommendations, so they should carry them out:

All Member States of the euro area should confirm without delay their resolve to swiftly implement the European recommendations for fiscal consolidation and structural reforms, especially as regards labour-market, competition in services and pensions policy, and adapt appropriately their draft budget.

The leaders sent a signal on coordination of direct taxes, but the required unanimity for meaningful common rules remains as elusive as ever.

Macro-economic conditionality seems to be targeted at the weaker economies with potentially greater problems to master their public finances as well.

Euro area legislation (Article 136 TFEU) could give the Franco-German aspirations a shot in the arm.

Financial Transaction Tax

We can expect a joint proposal on a Financial Transaction Tax, also known as a Tobin Tax or Robin Hood Tax.

The United Kingdom has rejected it before seeing the proposals (Commission one included), so eurozone Ireland has been content to require an EU-wide tax. Merkel's coalition partner FDP has sent the same kind of signals.

The European public favours a tax on financial transactions, but without fiscal and political union this remains just another example of the limits of intergovernmental deal-making.


All in all, the Franco-German proposals would enhance the influence of the heads of state or government (of the biggest eurozone states) at the expense of the other EU institutions, without solving the fundamental problems of the euro area: lack of robust institutions and democratic legitimacy at European level.

How about the confidence factor?

BBC News tells us that European stock markets continued to fall today.

Ralf Grahn

Thursday 18 August 2011

Eurozone leaders talk and shares fall

This afternoon BBC Business News reports that Shares fall in Europe and US as confidence drops (18 August 2011).

Why are the markets so ungrateful after chancellor Angela Merkel and president Nicolas Sarkozy promised the eurozone ”economic government”, consisting of two annual summits for heads of state or government in the euro area, as well as constitutionally enshrined debt-brakes?

Perhaps the commentariat could give us a few clues.

Ambrose Evans-Pritchard's Telegraph blog post In defence of PIGS (17 August 2011) named the non-decisions succinctly:

No eurobonds, no fiscal union, no boost to the EFSF rescue fund, no change of policy on the ECB’s mandate. Zilch.

The LabourList post by Jon Worth argues that it is better to save the Euro and the EU through fiscal integration than provoke the mother of all financial crises: The Eurozone predicament is undesirable, not unexplainable (16 August 2011).

Professor Karl Whelan argues on the IIEA blog that it is certainly unlikely that a continent-wide campaign to pass rigid fiscal rules that run counter to textbook macroeconomic principles will do much to boost the Euro’s popularity: The Merkozy Summit – Bad Politics, Bad Economics (17 August 2011).

Vihar Geogiev writes on European Union Law that this proposal will not solve the urgent problems of the eurozone. Any further dodging of the eurobond issue will only add damage to the eurozone economy. The proposals on ”economic government” stay within the logic of intergovernmentalism, which is a recipe for failure: Dissecting the New Franco-German Proposal for the Eurozone (17 August 2011).


While effective and democratic European level solutions remain officially banned, remember to check old and new comments on Bloggingportal.eu about the continuing eurozone descent.

Ralf Grahn

Merkel and Sarkozy: Eurozone letter to Van Rompuy

Yesterday morning the primary sources about our new ”economic government” were limited to video of the Élysée press conference and the press release from German chancellor's office.

Since then, we have more official materials about the proposed Twin Peaks ”economic government” of the euro area. The website of president Nicolas Sarkozy has posted the text of the press conference, with chancellor Merkel's remarks translated into French.

On this page you can choose the joint letter from Merkel and Sarkozy to Herman Van Rompuy, the president of the European Council, in French, English and German, which makes the proposals available in a more finely chiseled form.

The German chancellor's office offers a report of the summit: Deutschland und Frankreich für starken Euro. There is also a shorter English version: Germany and France in favour of European economic governance.

The press conference has been transcribed and the French parts translated into German: Pressekonferenz von Bundeskanzlerin Merkel und dem französischen Staatspräsidenten Sarkozy.

The letter to Van Rompuy can be found here as well: Gemeinsamer Deutsch-Französischer Brief an EU-Ratspräsident Herman Van Rompuy.

The same page offers links to the letter in English and French.


Yesterday I wrote three blog entries about the the summit between Merkel and Sarkozy, including interesting media reports and comments: Eurozone: Our new ”economic government”, Eurozone Twin Peaks ”economic government” in media and Eurobonds and eurozone reform rebound despite Merkel-Sarkozy summit.

Ralf Grahn

Wednesday 17 August 2011

Eurobonds and eurozone reform rebound despite Merkel-Sarkozy summit

Chancellor Angela Merkel and president Nicolas Sarkozy can hardly have imagined that the issues of eurobonds and profound euro area reform would disappear, only because they swept them under the carpet yesterday.

After the official statements by Merkel and Sarkozy and my reactions to the proposed eurozone ”economic government”, we made a first tour of European media reactions to the Franco-German proposals.

Blogs and mainstream media contribute to our understanding of the challenges for the euro area and the European Union, beyond yesterday's announcements.

Protesilaos Stavrou

According to Protesilaos Stavrou, eurobonds are necessary, but first the European banking system needs to be cured and sovereign debt restructured: The eurobond is the only way forward – But under what conditions? (16 August 2011).

Jan Seifert

Jan Seifert invited readers to an intelligent discussion about how the eurobonds need to be constructed in order to contribute to solving the public debt crisis: How Eurobonds are the way forward (16 August 2011).

Pietro De Matteis

According to Pietro De Matteis, on the Europe Today blog (Ideas on Europe), it has become increasingly evident that there is no other durable solution for the European economy(ies) than to move towards further fiscal and budgetary integration: The Eurozone Council: are we a step closer to a European Government? (17 August 2011).

WSJ Europe

The Wall Street Journal Europe concludes that Merkel's and Sarkozy's eurozone plans stopped short of more fundamental steps toward refashioning the area into a federal entity that would issue its own debt, disappointing investors hungry for a more radical solution to the euro-zone crisis: Franco-German Proposal Disappoints (17 August 2011).

NZZ Online

Chancellor Angela Merkel has repeatedly changed course during the eurozone crisis, belatedly and too little at a time, say some. Have her initial positions been tactically aimed at reigning in profligate countries, or have later changes been signs of weakness? The coalition parties CDU-CSU and FDP are baffled. Almost paradoxically the opposition Greens and SDP are prepared to support more radical eurozone reforms, despite popular resistance, NZZ Online reports: Wenig Vertrauen in die Führung (17 August 2011).

Fabien Cazenave

Fabien Cazenave, on the Fabien l'Européen blog, writes that the summit offered stronger political signals than he had expected. He seems to think that the Ecofin Council will be marginalised, whereas I have understood that the heads of state or government want to overshadow the informal Euro Group. Anyway, the tenor of the proposals is intergovernmental, and Herman Van Rompuy will remain the captive of their decisions and non-decisions.

Are all the euro area countries really going to ratify the ”Golden Rule” of balanced budgets within a year? An EU-wide Tobin tax on financial transactions would need unaniomous approval (which could usher in an autonomous European Union budget), but do we really see the United Kingdom accepting that? The common tax rate for French and German businesses is the good news from the meeting, but we have to wait for the detailed proposals.

Cazenave ends his post by discussing some French reactions, as well as the need for parliamentary democracy: Réunion Merkel-Sarkozy : des propositions fortes, mais sont-elles les bonnes ? (17 August 2011).

Beyond Brussels

The daily digest of Beyond Brussels records that: Sarkozy-Merkel meeting failed on the markets (17 August 2011).

Ralf Grahn

Eurozone: Our new ”economic government”

The German chancellor Angela Merkel and the French president Nicolas Sarkozy, who met in Paris yesterday 16 August, propose no eurobonds or treaty changes in the forseeable future.

They are going to enhance economic growth, improve competitiveness and combat public debt by asking for two eurozone summits annually, to be chaired by a person nominated for two and a half years. They propose the current president of the European Council, Herman Van Rompuy as the chair of these summits.

Consequently the informal Euro Group, already eclipsed by eurozone summits 'ad hoc', would permanantly move even farther outside the limelight.

Public debt is the hard core of their proposals. The Stability and Growth Pact (SGP) should be strengthened by introducing a ”Golden Rule” of budget balance (Schuldenbremse) as a constitutional rule in every member state of the euro area, within a year.

Internationally, France and Germany want to impose a tax on financial transactions.

Both leaders describe their proposals as ”economic government” (gouvernement économique, Wirtschaftsregierung).

Merkel and Sarkozy did not even begin to address the lack of democratic legitimacy of their intergovernmental ”government”, or the absence of public support for its maze of treaty provisions, secondary legislation, intergovernmental coordination and peer pressure, political declarations and international agreements.

Can we expect the financial and stock markets to regain confidence?

President Sarkozy does not envision any new increase in the capacity of the European Financial Stability Facility EFSF to intervene.


Zone euro : conférence de presse franco-allemande (video 48:29 min)

Deutschland und Frankreich für europäische Wirtschaftsregierung (Artikel, 16 August 2011), which refers back to the old communiqué 7 August 2011:

Deutsch-französisches Kommuniqué zur aktuellen Situation in der Euro-Zone (7 August 2011), about implementing the decisions by the eurozone summit 21 July 2011 and welcoming recent measures by the governments of Italy and Spain.


Bilaterally, in the spirit of the Franco-German Elysée Treaty the two countries continue efforts to harmonise their fiscal and economic policies aiming for greater convergence. They have set their sights on uniform tax rates for corporations, with detailed proposals due by 2013.

Ralf Grahn

Tuesday 16 August 2011

Eurozone RIP?

Is the meeting today in Paris going to be remembered as the event which set in motion the chain reaction leading to the demise of the first eurozone?

Ongoing obstruction

Already the decisions of the 21 July eurozone summit to bail out Greece a second time and to beef up the bail-out funds (EFSF, ESM) are causing cracks in the government coalition. See Financial Times Deutschland: Koalition rangelt um erweiterten Rettungsschirm (13 August 2011).

The following day, the FTD editorial sharply criticised the parliamentary delaying tactics, which could lead to the break-up of the eurozone:

Das hält diese Währungsunion nicht mehr aus. Wenn die Beschlüsse von Brüssel nicht zügig parlamentarisch umgesetzt werden, war's das. Entweder wir akzeptieren die Transferunion - oder wir schrumpeln zu einem Hartgeld-Resteuropa, das sehr viel höhere volkswirtschaftliche Kosten zu stemmen hätte, als die Ausweitung des Rettungsschirms je verursachen könnte.

Was langfristig dennoch bleibt, ist die Frage nach der demokratischen Legitimation.

See: Tempo bei der Euro-Rettung (14 August 2011).

Potential mutiny

German chancellor Angela Merkel is facing a mutiny by her coalition parties CDU-CSU and FDP, if she moves on eurobonds. The German version of EurActiv offers a detailed overview of positions taken by German politicians, as well as others: Euro-Bonds: Pro und Contra zu gemeinsamen anleihen (15 August 2011).

After stark warnings from the parties, especially the Bavarian CSU and the liberal FDP, a government spokesman stated that the eurobonds were off the agenda of Merkel's meeting today with the French president Nicolas Sarkozy. See Deutsche Welle: Berlin and Paris snub 'eurobonds' despite growing support (15 August 2011).

Empty-handed leaders

According to a press release from the chancellor's office, Merkel and Sarkozy are working on common proposals to improve working methods and crisis management in the eurozone, but what are the leaders left with, when the Germany rejects the eurobonds and takes them off the table? See: Bundeskanzlerin Merkel trifft Staatspräsident Sarkozy in Paris (15 August 2011).

Despite a brief spell of optimism on financial markets and stock exchanges, what is going to happen when the leaders of Germany and France step out empty-handed?

RFI carries the telling headline: Programme minimum pour la rencontre Sarkozy-Merkel (16 August 2011).

Even if the German and the French side have publicly swept the eurobonds off the table, Spiegel Online International still yesterday started its customary review of German editorials by saying:

The issue of euro bonds will loom large at German Chancellor Angela Merkel's crisis meeting with French President Nicolas Sarkozy on Tuesday.

On the whole, the editorialists seem more nuanced and receptive to eurobonds (at least as a necessary evil), than the leading politicians of the government parties. See: Euro Bonds 'More a Band-Aid Than a Miracle Cure' (15 August 2011).

Deutsche Welle notes that the liberal MEP Guy Verhofstadt has called for Merkel to embrace eurobonds. Everybody is talking about eurobonds, well, almost everyone (except the German and French leaders). Given the current positions, the report ends by wondering how Merkel and Sarkozy are going to profile themselves as crisis managers: Alle reden über Eurobonds – fast alle (16 August 2011).

Not going away

In The Wall Street Journal Europe, Marcus Walker notes that Berlin and Paris have dismissed the eurobonds ahead of today's meeting, but continues:

But the realization is dawning in both countries that Europe may need radical change to save its common currency.

See: Eurobond Debate Rises in Germany, France (16 August 2011)


If the national leaders are too limited or weak to launch an effective and democratic eurozone, could Merkel and Sarkozy use the press conference to enlighten us about how the dissolution of the first eurozone is going to proceed and share their thoughts about what happens after that?

Interested, among others, are 331,965,504 eurozone inhabitants.

Ralf Grahn

Monday 15 August 2011

Blogs call for eurozone reform

Thinkers seem to be ahead of governments, who have been stirred and shaken by markets.

On Comment is free (The Guardian) Linda Prieg argued that the eurozone has to address its fundamental structural problems. Monetary union requires fiscal union, as in the United States. Europe needs a more honest and nuanced debate about options: There's no future for the eurozone without fiscal union (9 August 2011).

While the political leaders have failed, only the European Central Bank has taken meaningful action to quell fears about Italy and Spain. The 17 members of the eurozone need to work in closer harmony, including the introduction of common eurobonds, wrote Daniel Mason on Public Service Europe: Politicians hand leadership role to ECB (10 August 2011).

The Eurozone's governance systems need to be transformed as its leaders and institutions have been repeatedly unable to get to grips with the problems. On his IIEA blog, Shane Fitzgerald discusses the effects of a reforming eurozone and a UK standing aloof: The UK and the Eurozone Crisis (10 August 2011).

On the FT Brussels blog, Stanley Pignal noted the criticism by Otmar Issing that the latest measures to stave off the eurozone crisis are dangerous and divisive. The current attempts are in conflict with ”No taxation without representation”: Otmar Issing frets on the bail-out (10 August 2011).

Social Europe Journal published an opinion piece, where George Soros demanded: Germany Must Defend the Euro (12 August 2011). The decisions of the 21 July eurozone summit are described as half-measures, but the article offers its own reform proposals.

The euroblog of Protesilaos Stavrou has been focused on the eurozone crisis, and highly critical of the ongoing efforts. In the blog post Is the crisis of the Euro leading to a Political Union? What kind of a union? (12 August 2011), he writes that a monetary union cannot possibly survive without a political union, which of course also implies a fiscal union. A political union can only be based on a democratically legitimate architecture, but now we are witnessing a widening of the existing democratic deficit. This is going to foster a new generation of euroskeptics.


You find links to my latest contributions in the blog post Eurozone issues.

Ralf Grahn

Sunday 14 August 2011

Merkel and Sarkozy to meet - for what?

The German finance minister Wolfgang Schäuble is confident that the eurozone is not going to break up. However, he rejects additional support to euro area countries in distress and common borrowing (eurobonds), as long as countries still (mis)manage their own finances. The current decisions have to carried out. Deutsche Welle quotes an interview in Der Spiegel (which I did not find online), in: Finanzminister Schäuble lehnt Euro-Bonds ab (14 August 2011).

However, Financial Times Deutschland picks up the possibility of eurobonds combined with centrally determined fiscal and economic policies, as a last resort: Schäuble knüpft Eurobonds an radikale Reform der EU (14 August 2011).

Still, the economy section (Wirtschaft) of Spiegel Online and the business section of its International edition in English offer a lot of quality material on the global financial crisis and the euro crisis.

When leading politicians from both coalition parties mount a frontal assault as vehement as this on the European Central Bank (partly as a proxy for their government), we are left wondering about how the federal government of Germany can contribute to constructive solutions in the eurozone. See: Union und FDP attackieren die Euro-Zentralbank (14 August 2011).

Thus, what can we expect in the way of proposals from the meeting between chancellor Angela Merkel and president Nicolas Sarkozy Tuesday, 16 August? See: Bundeskanzlerin Merkel trifft Staatspräsident Sarkozy in Paris (11 August 2011).

Spiegel Online International tells us that 'Merkel and Sarkozy Are Damned to Get Along' (12 August 2011), with background provided by German editorialists. Approval of the decisions by the eurozone summit 21 July is far from sure in Germany. Saving the euro and the German coalition government seem to be in conflict.

Despite the internal difficulties, can and will Merkel contribute to a grand bargain introducing eurobonds? NZZ Online reports the repeated call by Giulio Tremonti, the finance minister of Italy, but also that the French president Sarkozy is promoting eurobonds: Seilziehen um die umstrittenen Eurobonds (14 August 2011).

Ralf Grahn

People hostile – eurozone doomed?

In the interest of its citizens, the European Union, or at least core areas such as the eurozone, need to become effective and democratic, but we are still waiting for the Copernican revolution among our national political leaders, who still ”own” the EU.

Without their leadership, many point out increasing hostility among populations towards the integration project of these leaders.

In some countries, the people have been forced to swallow the bitter pill.

In other states, they have been constrained to foot the bill.

Little wonder that there is animosity in the air. This narrows the margins for the governments, as long as they remain within the straitjacket of their own design.

Those who wish for the death of the euro currency and the demise of the European Union rejoice. Even if total victory may remain elusive, they can still hope for major gains, such as defaulting countries, the eurozone splitting, election losses for more or less pro-integration governments and increasing discontent.

As long as the conceptual and practical limits of democracy are set at the national level, the ill-wishers can evoke that they have the numbers on their side, in all or at least most of the countries.

Until this day, the domestic leaders have not redefined the battleground.

Perhaps it is too much to ask from the current heads of state or government with national mandates to show the same level of continental vision as the founding fathers of the USA did, when the thirteen former colonies were still small specks on the map of the East Coast.

Game-changing progress is seldom made by those who are a part or a cause of the problem. Profound political reform does not start by commanding majorities.

How many where the philosophers of the Enlightenment?

Europeans need security and prosperity in a global environment. Effective powers at the continental level need to be democratically legitimate at the same level.

I do not know how long it will take for these simple truths to sink in, or transforming leaders to emerge.

I am reasonably sure that core groups have to take the lead.

Still, there is no place for despair, only impatience.

Ralf Grahn

Saturday 13 August 2011

Political fundamentals at root of eurozone crisis

The crisis in the eurozone (and the European Union) gives rise to interesting questions about political economy and economic policy; actually it leads us to fundamental political values and problems.

National governments in the eurozone may be in a state of silence and denial, but luckily freedom of expression exists in the world outside.

Less blinkered than in the corridors of power, people are - to various degrees - edging towards two realisations:

1) Political issues need to be dealt with at an appropriate level. Human rights and fundamental freedoms, free movement, internal and external trade, competition and competitiveness, the common currency and fiscal union, the environment, infrastructure, communications, research and higher education, foreign policy and defence are wholly or partly among the continental-size challenges.

Wise politicians at any level – local, regional, national or continental - do not meddle excessively in peoples' lives, but respect the principles of individual and societal freedom (subsidiarity).

In its current state of evolution, the European Union is the beginning of an answer to global challenges of more rational governance of fundamental issues affecting the security and prosperity of Europeans (and people globally).

Where deficient, the EU (or at least a willing part of it) should become able to protect our vital interests. The institutions need to robust (”energetic”) enough to do the job.

2) Pretensions of supremacy by Popes and autocratic rulers, as well as birthright privileges of nobility, have given way to the general acceptance of the sovereignty of the people (citizens). The road has often been long and hard.

We have instituted democratic government at the local, regional and national levels, but the European Union has only been adorned with certain democratic elements. It is basically still ”owned” by the member states, not its citizens, thus based on indirect democracy.

Twenty seven shards do not make a vase fit for purpose.

This lacuna needs to be filled by a system of representative democracy at federal level.

Naturally, representation and obligations become more complex when only some are mature enough to seek rational solutions, while others (vehemently) proclaim outdated and sterile concepts such as national sovereignty in order to cling to their powers, privileges or habits of thought.

Then, practical solutions have to found in order to allow peaceful progress for those who wish, without harming those who remain behind the curve. But the questions of powers and responsibilities (”no taxation without representation”, and vice versa) become quite complex, when different flotillas advance unevenly.

In the spirit of the Enlightenment – part of our common heritage - we need a combination of rational progress and tolerance.

Ralf Grahn

Wednesday 10 August 2011

Germany leading eurozone and EU reform?

Could Germany lead reform to take the right decisions at the right level, in a democratic manner? As Hamilton wrote, ”the means ought to be proportioned to the end”, but powers needed for the eurozone and the European Union should be based on their citizens.


Only the European Central Bank can act right now, but eurobonds would be sensible in the medium term, said Dr Daniela Schwarzer of the German Institute for International and Security Affairs (Stiftung Wissenschaft und Politik SWP): Eurokrise: Der Preis des Zauderns (4 August 2011).

The title evokes the cost of delaying effective action in the eurozone, when the market players keep driving the politicians. The ESM is too small to prevent a market run on one of the bigger euro area members, and it is hard to imagine that a rescue fund large enough would be politically feasible.

Just a few days before the weekend, Schwarzer saw the ECB as the only euro area institution with the ability to act, despite the drawbacks.

Eurobonds would mean a quantum leap in integration, but instituting common borrowing as part of ”crisis management” would further harden resistance by opponents to the euro currency.

In June 2011, Schwarzer had criticised the decision makers of wasting a year, even if some progress had been made: Eurokrise: Das vergeudete Jahr (22 June 2011).

I see willingness to advance beyond the mute national governments, but little in the way of democratic reform.

Interested readers can find more on the through the SWP web pages ”Die Eurozone” as well as the broader SWP-Themendossier ”Finanz- und Schuldenkrise”.

Germany in Europe

With its population and economic clout, Germany is needed for indispensable reform to strengthen the European Union and the eurozone on a democratic basis, but we see little inclination among the current German political leadership. Researchers seem to be more ready for incremental progress in various policy areas, but discussion about remedying the lack of democratic legitimacy remains vague. See:

Annegret Bendiek, Barbara Lippert and Daniela Schwarzer (eds.): Entwicklungsperspektiven der EU - Herausforderungen für die deutsche Europapolitik; SWP-Studien 2011/S 18, July 2011, 147 pages


The German government and its allies need to set a new course towards democratic and substantive reform.

Ralf Grahn

Tuesday 9 August 2011

Eurozone powers and limits (Updated)

Admittedly, the decisions by the governments of Italy and Spain and the the consequent interventions by the European Central Bank in the secondary bond markets brought relief to these Mediterranean countries. The president of the European Council welcomed the decisions:

Herman Van Rompuy, President of the European Council, welcomes the decisions taken to strengthen fiscal discipline and growth; Brussels, 8 August 2011 (EUCO 58/11)

However, stock markets generally and on Wall Street plunged on Monday (Deutsche Welle), and Asian stocks continued tumbling on Tuesday (BBC News).

Thus, the global outlook has taken a turn for the worse.


Reiterating the need for speedy adoption and implementation by the euro area member states of the decisions of the 21 July 2011 eurozone summit is not going to stop contagion in its tracks.

In a 3 August 2011 note Why Spain and Italy are under attack and how to defend them, Willem Buiter (Citigroup) discussed the need for structural reform in the product and labour markets of Spain and Italy, the shortcomings of the EFSF and the need for the ECB to intervene. Italy and Spain have reacted, the European Central Bank has acted, but the remaining flaws of the improved EFSF and ESM seem to be off limits for European politicians.

President José Manuel Barroso's letter to the heads of state or government of the eurozone countries has been suspected of bad timing (FT Brussels blog) and accused of causing the bond market plunge (BBC Business News, before update). Most of all, Barroso's letter has met with rejection from European political leaders and their spokespersons.

The European leaders have much on their plate, as they try to calm sentiments, secure passage of the agreed measures, explain complex issues to increasingly distrustful publics and to remain electable.

However, in the long run the refusal of the governments to embark on an open discussion about the political and economic fundamentals of the economic and monetary union (EMU) may end up doing more harm than good.

Only a federal solution can provide the Union with the effective tools it requires, declared the liberal leader Guy Verhofstadt.

Update 9 August 2011: Stanley Pignal on the FT Brussels blog has an entry about Otmar Issing's opinion piece in the Financial Times. Democratic legitimacy is the sine qua non for the political and fiscal union Europeans and their euro need, is my reading. Let's get talking about taking the right decisions at the right level, in a democratic manner.

Ralf Grahn

Monday 8 August 2011

Containing eurozone and US jitters?

Italy and Spain have faced increasing pressure from the bond markets, as well as outspoken calls to put their house in order.

To shift you into the right mood, Place du Luxembourg offers a detailed view of last week's bond yields and developments in the eurozone, with an abundance of references.

Not only vacations of political leaders and central bankers, but weekends too, were cut because of the credit downgrade of the United States and sour bond markets in the euro area.

Sarkozy and Merkel

The French president Nicolas Sarkozy and the German chancellor Angela Merkel issued a joint statement, where they reiterated their full support for the implementation of the agreement at the eurozone summit 21 July 2011.

They wish for the rapid approval of the decisions by the national parliaments, and they welcome the decisions by Italy and Spain to speed up budgetary consolidation and reforms for improving competitiveness. See (in French):

Zone euro – Communiqué franco-allemand

ECB Trichet

After a telephone conference of the Governing Council, the president of the European Central Bank (ECB) Jean-Claude Trichet issued a statement, which welcomed the announcements made by the governments of Italy and Spain concerning new measures and reforms in the areas of fiscal and structural policies. The Governing Council considers a decisive and swift implementation by both governments as essential in order to substantially enhance the competitiveness and flexibility of their economies, and to rapidly reduce public deficits.

The statement required full implementation by Italy and Spain of the new measures, as well as by all the eurozone countries with regard to both their national commitments and the decisions by the euro area summit 21 July.

On these conditions, the ECB dangled the hope of intervening through its Securities Markets Programme:

7 August 2011 - Statement by the President of the ECB


During the week, Italy was hit by prohibitively high rates to (re)fianance its public debt. At a press conference 5 August 2011, prime minister Silvio Berlusconi and finance minister Giulio Tremonti announced measures to accelerate the reduction of the public deficit and to introduce structural reforms.

Il Sole 24ore explains that anticipated budget cuts will balance the Italian budget already in 2013, instead of 2014: Anticipo 23 miliardi per i tagli. More on the government proposals, including a balanced budget amendment to the Constitution, here, and on the demands of the ECB here.


In the other big eurozone country hit by the bond markets, El País offers us an overview of the new measures by the Spanish government and finance minister Elena Salgado during the weekend: Salgado detalla un plan de ajuste de 5.000 millones ante la présion europea.

G7 statement

The Financial Times has gained access to and published the statement by the finance ministers and central bank governors of the G7 countries, who promise action and liquidity.

This morning the markets in Asia have not been jubilant, but perhaps we should wait for the details of various measures to emerge and be digested.

Ralf Grahn

Sunday 7 August 2011

Olli Rehn asserts budget consolidation and structural reform

The EU commissioner for economic and monetary affairs, Olli Rehn, Friday tried using reason with regard to the eurozone bond market turmoil:

Ongoing developments in the eurozone; 5 August 2011 SPEECH/11/540

According to Rehn, the latest market run on members of the euro area is not reasonable:

The spread of bond-market tensions across the euro area is, however, not justified by economic and budgetary fundamentals. Economic recovery is proceeding in most parts of the euro area, while important steps in budgetary consolidation and structural reform are underway across Europe and in particular in those Member States most exposed to market tensions.

My blog entry Rehn asserts eurozone recovery concluded that the commissioner had documented his case regarding growth, in the European Union as a whole and Cyprus, Italy and Spain specifically. (Naturally, if the markets turn ugly enough, anything can happen.)

I noticed that fellow blogger Protesilaos Stavrou fired a new broadside at the EU leadership - including José Manuel Barroso, Herman Van Rompuy and Olli Rehn – for ”challenging reason and real world facts”.

Should we look a bit more specifically at Rehn's assertion about budgetary consolidation and structural reform?

European Semester

The European Commission started the first beefed-up and streamlined planning cycle called the European Semester by a 12 January 2011 communication from Rehn's DG Ecfin. The AGS is available in 22 official EU languages; here the English version:

Annual Growth Survey: advancing the EU's comprehensive response to the crisis; Brussels, 12.1.2010 COM(2011) 11 final (10 pages)

DG Ecfin offers all interested readers an informative web page Stability and Convergence Programmes (or updates) and National Reform Programmes 2011, where you can find links to the national programmes for sustainable public finances (Stability and Growth Pact SGP) and for growth-enhancing reforms in line with the Europe 2020 strategy.

Although you have to look separately for intermediary stages, such as European Council conclusions and contributions by various Council configurations, there are links to the Commission staff working papers and proposed recommendations for the euro area and for each member state (including Cyprus, Italy and Greece).

The Ecofin Council concluded the first European Semester by issuing recommendations regarding both budget consolidation and structural reforms, exactly six months after the publication of the AGS.

Having been published in the Official Journal of the European Union, these recommendations and opinions are available in the EU language of your choice:

COUNCIL RECOMMENDATION of 12 July 2011 on the implementation of the broad guidelines for the economic policies of the Member States whose currency is the euro; OJEU 23.7.2011 C 217/15

COUNCIL RECOMMENDATION of 12 July 2011 on the national reform programme 2011 for Cyprus and delivering a Council opinion on the updated stability programme of Cyprus, 2011-2014; OJEU 16.7.2011 C 210/12

COUNCIL RECOMMENDATION of 12 July 2011 on the National Reform Programme 2011 of Italy and delivering a Council opinion on the updated Stability Programme of Italy, 2011-2014; OJEU 21.7.2011 C 215/4

COUNCIL RECOMMENDATION of 12 July 2011 on the National Reform Programme 2011 of Spain and delivering a Council opinion on the updated Stability Programme of Spain, 2011-2014; OJEU 19.7.2011 C 212/1


Having read the AGS and the recommendations and opinions, I invite readers to demonstrate where Rehn went over board in his assertion about budgetary consolidation and structural reform. (Again, a stampede can obliterate the worthiest intentions.)

Ralf Grahn

Friday 5 August 2011

Barroso calls for end to eurozone contagion

When the eurozone is marching towards more sustainable deficits, why did the bond markets suddenly pounce on Cyprus, Italy and Spain?

Their public deficits are far from new. The structural weaknesses and the resulting lack of competitiveness of these Mediterranean countries are notorius – and age old old problems they will ultimately have to confront and overcome.

The twin tracks of the Stability and Growth Pact and the Europe 2020 strategy are as true as ever.

After the competitiveness theme, with the Wealth of Nations roundup and Growth and competitiveness: California vs Europe as the latest contributions, I wanted to take a peek at the latest patients destined for compulsory care by the financial markets.

My musings started a series about Cyprus, Italy and Spain in the eurozone crisis (in Swedish, but with a number of links to materials available in English).

Grahnblawg: Turbulens trots minskande budgetunderskott i Europa (3 August 2011)

Grahnlaw Suomi Finland: Euroakuten: Cypern, Italien och Spanien (3 August 2011)

Grahnblawg: Euroområdet: Kortsiktig nervositet och långsiktiga reformer (4 August 2011)

Grahnlaw Suomi Finland: Ledare och bloggar om eurokrisen (4 August 2011)

Eurozone summit

In the background we have the eurozone crisis summit, with its conclusions on the agreed measures for Greece (including private sector involvement), extended powers for the EfSF and the ESM, lower rates for Ireland and Portugal, commitment to fiscal and growth targets etc:

Statement by the Heads of State or Government of the Euro Area and EU institutions; 21 July 2011 (4 pages)

Some may prefer a more journalistic approach. Spiegel Online explained the main decisions of the eurozone summit: What Was Decided at the Euro-Zone Crisis Summit (25 July 2011).

Barroso goes public

Yesterday brought some additions to the emerging picture. Commission president José Manuel Barroso published his letter to the heads of state or government. Despite the economic and budgetary fundamentals, Barroso explicitly mentioned the bond markets of Italy and Spain (as well as other euro area states) as ”a cause of deep concern” for the euro area as a whole.

Barroso called for the speedy and unconditional approval of the decisions of the eurozone summit 21 July 2011, but he also saw the need for further action to stem contagion. Barroso publicly proposed a reassessment of the beefed up European Financial Stability Facility EFSF and the the new European Stability Mechanism ESM:

Whatever the factors behind the lack of success, it is clear that we are no longer managing a crisis just in the euro-area periphery. Euro-area financial stability must be safeguarded, with all EU institutions playing their part with the full backing of euro area Member States. We need also to consider how to further improve the effectiveness of both the EFSF and the ESM in order to address the current contagion.

Concretely, I would like to call on you to accelerate the approval procedures for the implementation of these decisions so as to make the EFSF enhancements operational very soon. These changes should also avoid introducing excessive constraints in terms of either additional conditionality or collateralisation of EFSF lending. I trust that governments and national Parliaments will rapidly approve these decisions necessary to improve the EFSF flexibility.

I also take the opportunity to urge a rapid re-assessment of all elements related to the EFSF, and concomitantly the ESM, in order to ensure that they are equipped with the means for dealing with contagious risk.


Andrew Rettman on EUobserver noted that the Barroso letter was more outspoken than his earlier press statement. The article analysed the text of the letter and added comments by the Commission spokesperson: Barroso raises alarm about severity of euro crisis (4 August 2011).

EurActiv draws a background picture, with references and links to messages from various European capitals: Barroso asks leaders to stand firm on pledges (4 August 2011).

Ivan Delibasic contributed with another background in New Europe: It's all 'bear' and no 'bull' for Spain and Italy (4 August 2011).

In the European Voice, Simon Taylor offers an account of the Barroso letter: Barroso warns of eurozone crisis spreading (4 August 2011).

Deutsche Welle reported both German disapproval of Barroso's ideas and the downward spiral on bond and equity markets (in German): Barroso befürchtet Ausbreitung der Euro-Krise (4 August 2011.

On the FT Brussels blog, Joshua Chaffin discussed the vicissitudes of politics in Cyprus against the backdrop of the eurozone crisis: How will Cyprus restore its finances? (4 August 2011).


To grow commensurate to the tasks, the European Union (eurozone) needs to become more effective, which in turn requires a union based on the sovereignty of its citizens.

Ralf Grahn

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