FRANCE, SARKOZY AND THE FUTURE OF THE EUROZONE
Dr Ben Richardson and Dr Ben Clift, Politics and International Studies
In December 2011 the leaders of France and Germany declared that the EU needs a new treaty to deal with the Eurozone debt crisis, yet the proposals owe more to German rather than French fiscal policy. To mark 40 years since Britain entered the Common Market, Drs Ben Clift and Ben Richardson ask: What’s next for the euro and the EU itself?
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France and Germany proposed that a new treaty would ideally be implemented by all 27 EU member states, but, if that was not possible, then just by the 17 states which have adopted the euro as their currency.
“These proposals”, says Dr Ben Richardson from the Department of Politics and International Studies, “included automatic sanctions against any Eurozone country which runs a deficit of more than three per cent GDP”. The European Court of Justice would also be given the remit to monitor the fiscal situations of the Eurozone countries.
The British Prime Minster, David Cameron, famously disagreed with the plan, voicing his concerns that this could weaken the UK’s influence in the EU. He also insisted on an opt-out for the UK on any regulatory change on financial services. “It was these two positions in particular that led to the famous spat between Cameron and the French President Nicolas Sarkozy, with the latter likening the British Prime minister to a ‘stubborn child’.”
Dr Ben Clift, Senior Lecturer in International Political Economy, says that the traditions in French and German political economy are quite distinctly different, with the new treaty verging towards the Teutonic school. In German, he says, “you have a tradition known as Ordo-Liberalism, with an emphasis on rules-based market order”. This takes its name from the academic journal ORDO created by German economists in 1948.
“On the contrary in France you have a Dirigiste economic tradition.” This is when an economy prioritises the discretionary actions of political leaders, enabling direction by a central authority. “If we look briefly at the latest blueprint for rescuing the Eurozone or securing the euro, the emphasis is very much on stricter fiscal discipline achieved through tighter and more binding rules, so broadly speaking it’s much closer to the German model of economic governance than it is to the French one.”
 The nature of the Franco-German axis is central to the euro and its development ever since it began, says Dr Clift. “Without the Franco-German axis we would never have had a euro in the first place. Now that’s always been seen in French eyes as very much an equal partnership with the two key countries on equal footing, but if we look at the reality in the current context it’s really rather unequal and uneven.”
What problems could this inequality cause? “Germany is very much the economic power house... France has rather deeper economic problems and difficulties at the minute. France along with Germany is expected by the markets and the other Eurozone countries to provide the stability and solidity that keeps the euro together, but France is in debt and that undermines its ability to provide the joint European leadership that is sought.”
Until a few years ago France’s debt was at a ‘respectable’ level. However with the advent of the financial crisis a few years ago its debt rocketed up, reaching around 90 per cent of GDP in 2011. This hinders the country’s ability to match the economic weight of Germany. “I think this is why the current plan is really rather more German in inspiration than French.”
Greece’s repeated need for financial bailouts is very much at the front of people’s minds.
Whilst the rationale behind the fiscal plan is clear, enforcing it may be a much more difficult matter. The fiscal discipline in the plan is seen by the Franco/German axis to be the price to pay in order for the European Central Bank (ECB) to be prepared to take the strong action needed to allay fears in the markets. Yet, as Dr Clift points out, “the ECB is going to take a lot of convincing to spend the kind of money that will be needed to bail out troubled Eurozone economies, for example by buying up their bonds in the bond markets to get their interest rates down”. Also, Greece’s repeated need for financial bailouts is very much at the front of people’s minds. “There’s a moral hazard problem, whereby if you keep bailing out countries when they get into fiscal difficulties then you don’t give them any incentive not to get into fiscal difficulties next time. That’s why you need tight and binding rules.”
The compliance and enforcement rules are crucial to the plan. “What has effectively been planned in the December European Council where Sarkozy and Merkel put the plan together is something like a scaled-up and strengthened version of the existing stability and growth pact which we’ve had since the beginning of the euro, indeed, since before the euro.”
The difference is that there will be no negotiating whether or not a country is punished and there will be tougher sanctions if deficit or debt levels move in the wrong direction. “The difficulty is if we look at the experience of the first version of the stability and growth pact and if you look at the case of France, they spent much of the early 2000s effectively flouting the stability and growth pact rules in a fairly unrepentant way.”
Dr Clift goes on to say “it’s worth reporting that the stability and growth pact was fairly rigorous and strict in its first situation and then it got revised to render it looser and less binding in order to meet the needs of the sovereign nations seeking to tax and spend as they saw fit”.
The whole process will also take time. “A treaty change of this kind is always going to be problematic and drawn out. We don’t have a strict timetable but it’s certainly March 2012 before the next phase of moving towards treaty change takes place.”
That’s potentially time that the Eurozone doesn’t have, particularly taking into account the speed of change in financial markets. Meanwhile Sarkozy himself has his own personal concerns: he is up for re-election in April 2012.
Further Reading:
Ben Richardson is an Assistant Professor in the University of Warwick’s Department of Politics and International Studies. His research interests relate to the international political economy of development. His work is concerned with the production and exchange of commodities and the North-South politics in which this is embedded.
Ben Clift is Senior Lecturer in International Political Economy in the Department for Politics and International Studies. His research interests lie in comparative and international political economy, and he has published widely on French and comparative capitalisms, the politics of economic ideas, capital mobility and economic policy autonomy, the political economy of social democracy, and French and British politics in journals including The British Journal of Political Science, Journal of Common Market Studies, The Journal of European Public Policy, The Review of International Political Economy, New Political Economy, Party Politics, and Political Studies. He is co-editor (with Cornelia Woll) of a special issue of The Journal of European Public Policy entitled 'Economic Patriotism: Political Intervention in Open Markets'.
On Monday 5th March 2012 the Department of Politics and International Studies will host its fifth annual public debate in conjunction with the Review of International Political Economy. The debate is free of charge and will revolve around the current crisis in the Eurozone. The speakers are Professor Brigitte Young (University of Muenster), Professor Magnus Ryner (Oxford Brookes University) and Dr Ben Clift (University of Warwick). It will take place between 5.15pm and 7pm in M1 in the Warwick Business School Teaching Centre (Radcliffe House). The Lecture Theatre will be open from 5pm for audience members to take their seats. More information here.
By Penelope Jenkins
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