News Analysis: A triumph for politics, a crisis for EU

Posted in Europe | 08-Dec-03 | Author: John Vinocur| Source: International Herald Tribune

PARIS - In its quest for coherence and credibility, the European Union has long suffered from the notion that it is a place where politics trumps all. Often, there's a swipe of affection in the caricature; the EU, after all, consistently muddles through.

But early Tuesday morning, overruling the executive European Commission, a group of eight countries voted to let France and Germany escape penalties for their breach of the budgetary rules of the Stability and Growth Pact that underpins the euro.

It was, beyond doubt, an exceptional decision. It unmistakably signaled that politics of the moment represented greater wisdom than the rules, and, at worst, left the door open to suggestions that anything the EU had decided or might decide in the future would have the force of law only until members tired of its constraints.

In the view of the EU's monetary affairs commissioner, Pedro Solbes, the political process, without any legal basis, had undercut the sanctity of a treaty adopted and ratified by member countries.

A 7-4 majority of euro zone countries had rebuffed the commission's recommendation, which ultimately could have led to multibillion-euro fines, against the French and Germans in favor of a "political declaration" rationalizing how the two are projected to overrun the pact's deficit targets for the third straight year in 2004.

French and German officials struggled to say the pact was still in effect. Still, for opposition politicians in both countries, keen on characterizing their government's actions as a betrayal of European probity and solidarity, the situation called for the language of catastrophe. "This is a black day for all of Europe and the euro," said Friederich Merz, the deputy leader of the Christian Democrat Parliamentary group in Berlin. He described Hans Eichel, the German finance minister, as "carrying one of the most important sets of rules to the graveyard."

For Pierre Moscovici, a French Socialist and former minister for Europe, the tone was the same. "Since one thing leads to another, this is something that can lead to the end of the notion of Europe," he said. France and Germany had signaled, according to Moscovici, "that Europe can be a rule that you bypass. Discipline doesn't function anymore, and sanctions have no effect."

Without the Stability and Growth pact as a steely overseer of the euro zone members' cautious economic management, the common currency, in theory at least, could be seen as adrift.

But the euro group's vote contained an inescapable ignominy. For the benefit of the miscreant French and German economies, the euro zone partners ran around a law that Germany insisted in 1997 be one of harsh constraint. The idea then was to scare so-called Club Med euro zone members, from southern Europe, into compliance with deficit, debt and inflation targets.

Now France and Germany have become the laggards, unable to cut spending and accelerate growth, while once-suspect Spain has successfully combined budget cutting and reducing unemployment. With the Netherlands, Finland and Austria, Spain voted for the imposition of sanctions - which would have represented a public humiliation for France and Germany at a time when their leadership aspirations in the EU are hard-pressed.

Both France and Germany, along with economists from other countries, have argued that the stringent budgetary requirements of the Stability Pact are out of place during a period of economic retrenchment. Germany insisted it could make no additional savings, according to Eichel, since it was now at "the edge of what the population can tolerate."

But Germany failed twice in the past two years to reach the pact's targets and promised each time to get things right. It began pleading only this autumn that the Stability Pact targets demanded a supple political interpretation, and that it was right in not complying.

In the most immediate terms, the decision carries the possibility of bringing disrepute to the EU's work on a new constitution, which is scheduled to be completed in December. The high-minded ground of constitution's framers, already muddied by the continued jockeying of many member states, now is threatened by the idea that whatever the document makes law, European political alliances could find away around them.

In complaining that Italy had joined in "a blocking minority" with France and Germany before the meeting to allow them to escape disciplinary action, Finance Minister Didier Reynders of Belgium pointed in the direction of a potentially colossal loss of confidence in the constitution. Reynders said there was "never a good time to depart from a treaty. But this is particularly dangerous because we are on the eve of negotiating a new constitution.

"It will be rather difficult after that to explain that we absolutely want to respect the rules," of a new constitution, he said, while "at the same time we're seeking blocking minorities to avoid applying a current treaty."