Fri, Jul 06, 2012 - Page 9 News List

Europe should surrender sovereignty to solidify its union

The dream of a real EU, one that is politically and fiscally integrated, may materialize as a solution to the debt crisis

By Alan Wheatley  /  Reuters, LONDON

However, speaking at a pre-summit meeting in London of the Open Europe think tank, Silberhorn said mutual aid had its limits: he echoed Merkel’s mantra that underwriting common euro bonds would be too much of a burden even for Europe’s mightiest economy.

“Germany will keep solidarity, but we will have to reject the appeal for selflessness,” he said.

In contrast to Germany’s federal model of government, which makes it more natural for Berlin to cede fiscal authority, France cherishes a strong central state and is loath to see the responsibilities of the French parliament in Paris pass to Brussels.

However, France has been losing economic ground to Germany, diluting its influence in the integration debate.

“It is still too strong to accept further loss of sovereignty, but it is too weak to offer a clear and meaningful alternative,” said Marc Chandler, global head of currency strategy at Brown Brothers Harriman.

Jean-Dominique Giuliani, president of the Fondation Robert Schuman, a pro-European think tank in Paris, saw no political willingness in France in the short term to bow to Germany’s demands for a transfer of power. For a start, both main parties studiously avoided the issue during France’s just-concluded presidential and parliamentary elections.

Yet he said the ruling Socialist Party of French President Francois Hollande was likely to ratify the EU’s fiscal compact, signed by his conservative predecessor Nicolas Sarkozy, which requires strict adherence to debt and deficit limits on pain of sanctions.

That might be awkward to explain for Hollande, who campaigned on a pro-growth platform, and so provoke a backlash from sovereignists in his own party as well as from radical parties on the left and the right, including the eurosceptic National Front.

However, it would leave France’s two main political groupings in favor of greater integration, Giuliani said.

“And with the economic situation quickly getting worse in France, I think it will become urgent to push on towards steps that involve sharing sovereignty, notably on the budget,” he added.

As for Germany’s opposition to euro bonds, Giuliani said the eurozone’s extension of hundreds of billions of euros in loans and guarantees to bail out Greece, Ireland and Portugal, and now Spain and Cyprus, already constituted a mutualization of liabilities.

Michael Heise, chief economist at German insurer Allianz, agreed that the bailouts represented debt pooling on a massive scale.

“If something goes wrong, for example if Greece exits the eurozone, it will not just be Germany that is hit,” he said.

This was all the more of a reason to make sure the euro was solidly underpinned by requiring central oversight of members’ budgets, Heise said, in another echo of Merkel’s views.

“When we’ve achieved that, the path towards some mutualization of debt — euro bills or something of that type — will probably take place. But that’s the right procedure and sequence for going forward,” Heise said.

By proposing direct aid to banks, leaders took what could turn out to be a crucial step towards severing the dangerous link between weak lenders and their over-indebted sovereigns.

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