France’s ‘general attack on the euro’

EU Finance Ministers have backed off from a confrontation with the new French President. They had wanted to force France to balance its budget by 2010 but they have been palmed off with an empty promise that the country will do all it can to reduce it borrowing providing that the economy grows. This means that France will continue to borrow until 2012, in spite of earlier undertakings to the contrary. But this is no ordinary wrangle within the Council of Ministers. Sarkozy’s disagreement with the euro-zone Finance Ministers goes to the heart of the Stability Pact and its philosophy. Sarkozy’s decision to attend the meeting of finances uninvited is being seen (at least in the German press) as a wholesale attack on the very fundamentals of the monetary union. For the Germans, the whole EMU structure is based on the independence of the European Central Bank; control over budgets and borrowing; undistorted competition within the euro zone; and benign neglect of the euro exchange rate, the control of inflation being the single priority for the ECB.

Sarkozy, it is alleged, is attacking all four of these pillars of the euro regime. He wants to undermine the Stability Pact (which governs borrowing) and change its rules. He wants to limit the independence of the ECB by requiring it to pursue an exchange rate policy: in particular, he wants the euro to weaken on the foreign exchanges, since thinks that too high a rate damages exports and growth. He wants monetary policy and budgetary policy to be closely coordinated. And he has attacked the principle of undistorted competition by having the reference to it removed from the new treaty which the EU is now drawing up to replace the defunct constitution. Jürgen Stark, the Chief Economist of the ECB, has attacked these proposals and said that they will damage the climate in which the ECB operates, threatening its independence. [‘General attack on the euro,’ Patrick Welter, Frankfurter Allgemeine Zeitung, 11 July 2007]

---- An excerpt from John Laughland's Intelligence Digest. For a free e-mail subscription to the Intelligence Digest, please click here ----