BRUSSELS, Nov 28: Europe’s single currency will almost certainly survive this week’s controversial eurozone deal allowing France and Germany to escape budget sanctions. But by riding roughshod over European Union rules, Paris and Berlin have damaged the bloc’s key institutions and thrown a spanner into negotiations on the bloc’s new constitution.
The Franco-German deal has had no immediate negative impact on the rising fortunes of the euro, with markets apparently anticipating moves by Paris and Berlin to stimulate long-stagnant growth. But Tuesday’s de facto suspension of the eurozone stability pact has shaken political entente NE Bacross the soon-to-be 25 nation Union.
Tempers are running high at the European Commission, the eurozone watchdog whose calls for disciplinary action against Germany and France for having breached the stability pact’s budget deficit limit of three per cent of GDP were over-ruled by a majority of EU finance ministers.
The EU executive has so far steered clear of threatening legal action against EU governments for violating eurozone regulations. But after crisis talks this week, the Commission sternly cautioned governments not to use “ad hoc measures to suspend or amend the stability pact every time they deem that its provisions are too stringent or inopportune.” Added Commission chief Romano Prodi: “There cannot be rules a la carte.”
The European Central Bank in Frankfurt is equally angry. The ECB governing council has denounced EU finance ministers for taking a decision, which risks undermining the credibility of the stability pact and eroding confidence in sound public finances.
More is at stake than just Europe’s financial reputation, however. As EU governments enter a decisive stage in long-running negotiations on a new treaty, it’s the political fall-out from the smashing of eurozone rules by France and Germany which is causing most concern across Europe.
The budget deal has highlighted the continuing imbalance in power between big and small states, triggering fears that the gap will become even more acute in an expanded Union. EU policymakers are also braced for more acrimony in already difficult constitutional talks, with countries expected to step up the fight to defend national interests.
“This shabby deal will endanger the ratification of Europe’s new constitution,” warned Graham Watson, leader of the Liberal Democrats in the European Parliament. “Citizens may well ask what is the point of agreeing new rules to run the EU if the big countries will ride roughshod over them when the going gets tough.”
Others warn that by sidestepping disciplinary action under the stability pact, France and Germany have forfeited their leadership role in the Union. “France and Germany will pay a heavy price in lost political credibility,” cautioned John Palmer of the European Policy Centre, an independent Brussels-based think tank. This could hurt both countries’ chances of securing wider EU backing for their plans for closer cooperation in areas such as security and defence, Palmer said.
The Big Two’s “unholy alliance” is not good for a Union where all countries are supposed to have equal clout, say critics. Spain has been particularly quick to warn that France and Germany’s tactics in sidestepping stability pact sanctions makes it even more important that medium-sized nations like itself should not see a change in their voting rights granted under the earlier Nice Treaty. These give Spain and Poland almost the same number of votes as those granted to Germany and France but could be changed in the new constitution.
The constitutional talks were sticky enough without added anger over the stability pact. Although discussions were launched in early-October, progress continues to be slow, with governments showing little signs of compromise on key issues. As a result, there are fears