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Germany's hand will be uppermost as Europe writes new fiscal rules

As Chancellor Angela Merkel pushes tough new policy on debt and overspending to save the Eurozone, other member nations brace for a more German Europe.

December 02, 2011|By Henry Chu, Los Angeles Times
  • German Chancellor Angela Merkel at a news conference in Berlin. She called for rewriting the European Unions treaty to give more power to bodies such as the European Commission and the European Court of Justice, which could act as enforcers on Eurozone nations' fiscal behavior.
German Chancellor Angela Merkel at a news conference in Berlin. She called… (Michael Sohn, Associated…)

Reporting from London — European leaders are coming to grips with the fact that in forging a stronger union capable of weathering the continent's debt problems, they are also likely to create a more German Europe.

Germany and France, the continent's two heavyweights — in that order — each made a proposal in the last two days to tighten the bonds of the Eurozone by putting member nations' spending and budgets under stricter central control. Aligning fiscal and economic policies, they say, is the only way for the zone's shared euro currency to survive this crisis and avoid new ones.

Leaders of the two countries will meet Monday to work out details of their strategy.

But after years when national leaders could afford to pay lip service to the idea of fiscal discipline, the new order will mean European nations forfeiting some of their independence. And while France has a say in what happens next, the rules will be largely written in Berlin.

On Friday, German Chancellor Angela Merkel laid out the case for a fiscal union with tough rules on debt and overspending for the 17 nations that use the euro.

"We have to learn from this crisis," Merkel told lawmakers in the Bundestag, Germany's lower house of Parliament. "The lessons are simple. Rules must be adhered to, their adherence must be regulated and breaking them must have consequences."

She called for rewriting the European Union's treaty to vest greater powers in bodies such as the European Commission and the European Court of Justice, which could act as enforcers.

Mindful of German sensitivities, she insisted that her country must not lose sovereignty in the process. But Germany has the luxury of being able to set rules that it can comfortably live by.

"This must happen without taking power away from the German Bundestag," Merkel said, adding, "We have no intention — under our constitution it's not possible — to have our budget controlled by a European institution."

Her remarks came hours after French President Nicolas Sarkozy addressed his own compatriots Thursday evening on the need for "re-founding and rethinking the organization of Europe" to shore up the euro.

Sarkozy differs sharply with Merkel on who would ensure compliance with those policies, preferring a strengthened but still undefined mechanism for Eurozone governments to police themselves, not EU institutions based in Brussels.

But he, too, was keen to convince his listeners that France would not be giving up any of its cherished independence, even though his acceptance of the need to slash spending and debt goes deeply against the grain of French politics and represents a tacit victory for German notions of fiscal rigor.

Sarkozy, who faces a difficult reelection bid in April, immediately came under fire from opponents on both the left and right.

"Nicolas Sarkozy has given in everywhere. And he doesn't even realize this, which is terrible for the French," declared Martine Aubry, head of the Socialist Party.

Marine Le Pen, leader of the far-right National Front, which has siphoned support away from Sarkozy's center-right party, accused him of promoting a "German Europe that would impose more austerity on the French…. Mr. Sarkozy is heading for federal integration and the abandoning of all French sovereignty."

The criticism reflected unease across Europe over the exercise of German muscle. In Greece, demonstrators have pointedly recalled Germany's Nazi past. Poland's foreign minister, Radek Sikorski, caused a political uproar at home this week when he said he embraced Berlin's leadership. It hasn't helped that a close Merkel ally, Volker Kauder, declared last month that "Europe is speaking German."

Sarkozy and Merkel, as the two most important politicians in the Eurozone, are looking for mutually agreeable solutions that address the immediate conflagration as well as deeper structural issues.

Sarkozy has worked hard to keep up with Merkel. But analysts say his position is much weaker because of Germany's economic might and because France's own economic situation has become shakier, which has forced Sarkozy to scramble to ensure that Paris holds on to its triple-A credit rating.

Merkel's demand for fiscal union is taking precedence over Sarkozy's wish to unleash the European Central Bank, and the fiscal model being touted for the Eurozone has a decidedly Teutonic cast.

The likeliest compromise, analysts say, would have Sarkozy bow to Merkel's long-term goal of a stronger collective fiscal and economic regimen to help prevent similar crises in the future. In exchange, Merkel would relent to Sarkozy's demand that in the short term, the European Central Bank should intervene more forcefully to protect financially distressed nations, especially Italy and Spain.

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