
WAR AGAINST GERMANY
The old problems of the "old world" are becoming intractable
Author: Sahil ISGANDAR, a political scientist Baku
Ahead of the EU summit, its President Herman Van Rompuy presented a plan for the future European Economic and Monetary Union entitled "Towards a Genuine Economic and Monetary Union". Prior to that, the plan passed a test of strength at a meeting of the finance ministers of France, Germany, Spain and Italy in Paris. The essence of the plan, actively lobbied by Germany and senior European officials, is to hand over new control functions to the EU or create new supranational bodies. But it is precisely this point that is seriously challenged not just by the UK, which demands guarantees that the proposed reform of the eurozone will not damage the UK financial sector and the interests of Britain on the single EU market, but also by France and Scandinavian countries. It is noteworthy that even the eurozone countries, which desperately need rescue loans, are not inclined to lose some of their political and economic sovereignty. The main battle at the summit is about this issue. The "problem" eurozone countries, especially the governments of Spain and Italy have found a reliable ally in France represented by its new president Hollande, who opposes Germany and sides with the debt-burdened southern EU members. Prior to the summit, in order to share the burden of servicing public debt, Hollande proposed issuing general debt bonds - Eurobonds. His more fundamental idea provides for the redemption of public debt by European funds above the upper limit of 60 per cent of GDP. According to him, Europe must have greater "solidarity" before countries limit their sovereignty. This position is in sharp contrast with the position of German Chancellor Angela Merkel, who is opposed to additional obligations without creating a system of effective control, i.e. without limiting national sovereignty. At the summit, Italian Prime Minister Mario Monti said that he would refuse to accept Europe's growth pact without addressing the problem of servicing Italian debt. Rome insists that the ECB or the European fund for saving the euro buy up Italian government bonds on the secondary market to automatically lower the risks. Supporting him, Spanish Prime Minister Mariano Rajoy, in turn, demanded money to refinance Spanish banks directly from the fund for saving the euro without asking the EC, the ECB and the IMF. French President Francois Hollande insisted that journalists should be briefed on the problems that emerged at the summit. It is likely that the protesting positions of Paris, Madrid and Rome had been agreed between them in advance. As a result, during the night meeting, Angela Merkel found herself in a difficult situation and almost single-handedly resisted pressure from the troika. After a 15-hour heated discussion, Merkel's resistance was broken. Italy and Spain got the right of easy access to the financial fund of the European Stabilization Mechanism (ESM). They will not face stringent demands from the EC, the ECB and the IMF, as was the case in relation to Greece and Ireland. The ESM will purchase government bonds of countries in crisis, while Spanish banks will receive funding directly from it, which will reduce the burden of servicing the debt for Spain and Italy. But Merkel demanded the signing of a special memorandum to ensure the use of such assistance. European Council President Van Rompuy called the results of the sleepless night a "breakthrough".
According to the German media, German taxpayers will have to pay for this "breakthrough". It should be noted that recently, in one way or another, Merkel came under pressure from IMF President Christine Lagarde, US President Barack Obama and even China, which is out of the ordinary for Europe. In turn, the German chancellor repeatedly emphasized the conditional character of the deal. Despite the barrage of criticism from the German parliamentary opposition and the majority of the media, the German parliament ratified the creation of the European pact of budgetary economy and the ESM fund. Some experts believe that Merkel's concession was the only possible right step within the framework of the EU's general crisis policy. The failure of the ratification of the European pact in the Bundestag would be a bad example for the rest of the eurozone. But at the same time, the concession virtually means the defeat of the ruling coalition in the forthcoming federal elections in Germany next year. According to opinion polls, today 70 per cent of Germans oppose the creation of an assistance package, while 40 per cent are generally inclined to return to the national currency. By the way, the idea of returning to national currencies is becoming more obsessive in many countries of the eurozone. Upon completion of the EU summit, British Prime Minister David Cameron said that the current status quo in Europe is unacceptable. He did not rule out a possible referendum on the membership of the United Kingdom, which, according to British sceptics, is forced to participate in the rescue of the euro, in the European Union. But rejecting calls for an immediate vote, he expressed the hope that it will be possible to conclude a new deal with Brussels in the course of time.
It should be noted that the decisions taken in respect of Italy and Spain displeased Helsinki. Finnish Prime Minister Jyrki Katainen said that he was dissatisfied with the results of the summit, and if assistance is provided for Spanish banks from the temporary fund, his country will demand a guarantee from Madrid. In addition, this may encourage other countries to use pressure tactics in the dialogue with Brussels. For example, the leader of the parliamentary party of Greece - SYRIZA - Alexis Tsipras, repeatedly assured the Greeks that firmness in dealing with the EU will help review the unpleasant conditions of the troika (EC, ECB and IMF). And where is the guarantee that the new Greek government will not attempt to adopt such tactics?
The outcome of the meeting: it is a draw
The main decisions of the EU summit were: 1) the adoption of the European pact of economic growth proposed by France, Italy, Germany and Spain and a service fund of 1 per cent of the EU's GDP of 120 billion euros; 2) the adoption of Van Rompuy's project on the banking and fiscal union in general terms, the establishment of which will take 10 years; 3) the adoption of a single EU patent system with centres in Paris, London and Munich. We can say that the summit ended in a draw. Although contrary to Merkel's wishes, Italy and Spain received loans without strict conditions, the German chancellor managed to prevent a decision on the issue of Eurobonds. But this draw is more in favour of Merkel's opponents. First, Berlin's concessions predetermined the defeat of Germany's centre-right forces in the upcoming federal election. Merkel and her supporters are caught in the crossfire of criticism from their domestic and foreign opponents. If the former accuse them of concessions at the expense of German taxpayers, the latter accuse Merkel of opposing the idea of equal responsibility between all EU countries. In particular, the famous American financier George Soros blames the woes of the eurozone mainly on Merkel, whose economic policies led to disastrous results.
In his view, Germany, which rose from the ashes after the Second World War thanks to the Marshall Plan, does not want to show the same generosity as the United States. In other words, Berlin is trying to gain maximum political dividends in the European family with minimum expenses.
Thirdly, it became apparent that a powerful opposition force represented by France, Italy and Spain has taken shape in the eurozone. It opposes the austerity policies lobbied by Merkel and Brussels. It is possible that with the victory of the centre-left forces in the upcoming federal election in Germany, this troika will cooperate with the new authorities and finally secure Berlin's consent to issue Eurobonds.
Most experts regard the current eurocrisis as a result of the imbalance in the economies of rich northern and poor southern Europe. And in this imbalance, an important role is played by the difference in the structures of these economies. If the economy of the Nordic countries is focused mainly on the development of production capacities and manufacture of end products in the form of real goods, southern countries rely mainly on the development of tourism and services. This situation allows the Nordic countries to take a dominant position in the export of competitive products. Some experts, as well as part of the population in problem countries believe that Germany's export might is one of the main causes of the crisis in the eurozone. That is why Germany, which does not want to part with its dominant role in the matter of exports, opposes the release of Eurobonds, because in this case, additional emission and partial devaluation of the euro are inevitable, which may contribute to increased exports from southern European countries. It should be noted that the initiative to create a single European currency belongs to the French government. After the reunification of Germany in October 1990, Paris, fearing that a united Germany would ruin the weaker economy of neighbouring France and other European countries, set a condition for Berlin: For France to accept a united Germany, the latter must give up a strong national currency - the mark - and introduce the euro. The subsequent course of events showed that it was precisely the German economy that benefited from this venture. In fact, another cause of the crisis in the eurozone is excessive and unwarranted speculation at stock exchanges, which results in making money out of thin air becoming a vicious practice. The production of a real competitive product fades into the background.
Future difficulties
Another major challenge for the eurozone countries in the production of competitive products is the embargo on the purchase of Iranian oil. It is possible that this will lead to inflated prices on the world market and increased cost of goods. At a time when the eurozone is in the grips of an economic crisis, it is very inappropriate.
Along with the presidency of the EU, Cyprus has asked Brussels for 10 billion euros in financial assistance. In parallel, Nicosia is trying to get loans from Russia or China. According to Cyprus' Deputy Minister for European Affairs Andreas Mavroyiannis, in some cases, loans from Russia are more suitable for Cyprus due to their conditions. At the end of last year, Cyprus, which vainly appealed to EU institutions, received a loan of 2.5 billion euros from Moscow. Previously, Nicosia asked Russia for another loan - 5 billion euros. Many agree that Moscow's response will likely be positive. Perhaps, that is why one of the journalists at a press conference in Brussels called Cyprus a Russian Trojan horse in the EU. This point caused a serious scandal. Berlin fears that Cyprus will use its presidency of the EU only in its own interests. Kurt Lauk, head of the Economic Council of the Christian Democratic Party led by Angela Merkel, said that Cyprus should not preside over the EU as it is a country that needs to be saved: "Europe will not be cured by a chairman who is receiving intensive therapy against infectious diseases." In addition, he said all countries requesting assistance should be banned from the presidency. The abovementioned deputy minister of Cyprus for European affairs, Mavroyiannis, called his country's presidency "a test of maturity". But this test is not limited only to the economic solvency of Cyprus. An important issue in EU foreign policy during the Cypriot presidency will undoubtedly be relations with Turkey, which does not officially recognize Cyprus. Back in September last year, Ankara announced that it would freeze contacts with the EU during Cyprus' presidency, although Turkey has slightly softened its position since then and applied its threat only to activities under the auspices of Cyprus. As for other European institutions, Ankara will continue the dialogue with them. However, at a time when the crisis in the eurozone and instability in the Middle East are dragging on, Brussels is unlikely to enjoy dealing more closely with the difficult relationship between Ankara and Nicosia - the common European home has enough troubles anyway.
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