Friday, December 02, 2011

The credibility chasm

In front of her own parliament, Merkel rejects the idea of a "quick fix", telling her MPs that the German constitution does not permit devolving budgets to a European institution. Discussion about Eurobonds - multi-national issuance in which Club Med would piggyback German credit ratings - is "therefore pointless", she says. The only way to have them would be full fiscal union.

Thus, we are told by Merkel herself that she is determined to create a legally-enforceable "fiscal union" for the eurozone. The details are to be revealed jointly by Merkel and Sarkozy in their address on Monday.

But we are not being told the whole story here. Firstly, Sarkozy has already rejected the idea of the further supranationalism that would be involved in developing a legally-enforceable "fiscal union". And the reality is here in the small-print. A "legally-enforceable" fiscal union is a supranational union – compulsion as opposed to the co-operation entailed in intergovernmentalism. On the face of it, Merkel and Sarkozy are already at odds.

Then there is that small matter of the German constitution. Merkel is right in saying that its constitution does not permit devolving budgets to a European institution. But that would apply with or without a new treaty. Merkel cannot adopt an amendment to the Lisbon Treaty if it conflicts with Germany's Basic Law.

Thus, as far as we are aware, in order for Merkel to get her "fiscal union" – France permitting - she must change the German constitution, which would appear to require a referendum.

This now confronts the timescale issue. None of this can be completed before the end of 2013. Yet immediate action is needed – not in two years' time, but now. There lies the great disconnect. What happens between now and 2013, beading in mind that Merkel herself says nothing can happen without fiscal union?

Then, finally, 2013 is slap bang in the middle of the German general election campaign. Assuming that Merkel wants to get back in (and has any chance of so doing), how is that going to affect any referendum? Can Merkel really fight a referendum calling for the highly unpopular move of greater fiscal union, while at the same time seeking re-election?

At the outset, Merkel says that we are dealing with a sovereign debt crisis, but also with a crisis of trust. But there is also a crisis of credibility. What the "colleagues" say needs doing they cannot agree amongst themselves, and they cannot offer a realistic timescale for that action.

We thought yesterday, from José Manuel Barroso's statement, that the talk on the treaty was a confidence-builder, a statement of intent, while the real action goes on elsewhere. But the situation has deteriorated too far for cosmetic action to restore confidence. Real action is needed. But, it would appear, there is no "real action". This is all smoke and mirrors. The credibility gap is in fact a chasm.