Sarkozy and Merkel have met. They propose a financial transactions tax (good). They also propose a new council to govern eurozone economics, possibly to be headed by von Rompuy. I won't say this is a bad idea, rather an indifferent one. Clearly it's a response to the obvious need for greater economic coordination if the euro is to survive, but everything will depend on the powers of the new council and the degree of sovereignty that member states are required to give up. This could be mere eyewash, or it could be the start of something big, and necessary.
Then they go on to recommend the "golden rule" (balanced budget constitutionally mandated, albeit with escape clauses), which to my mind stands La Rochefoucauld's maxim on its head: "L'hypocrisie est un hommage que le vice rend à la vertu," La Rochefoucauld said, whereas la règle d'or est un hommage que la vertu rend au vice: it makes lawmakers feel virtuous but compels them to vicious misbehavior (in the form of procyclical budget-cutting) in a crisis. If they're seeking an exit from overindebtedness, they would do better to follow the advice of Augustine in the fleshpots of Alexandria before his conversion: "Make me stop sinning, O Lord! but not just yet!"
They also--new proposal--will consider a common corporate tax for France and Germany, a good idea and a step toward better coordination. Finally, they rule out Eurobonds for now but not forever: this can come, they agree, but only after fuller integration has been achieved. In the meantime they promise to defend the euro to the hilt. Let's hope this will be enough.
On the whole, this appears to have been a constructive meeting and more substantive than I had feared. I am told on good authority that there was also more substance to Mme Lagarde's statement than I indicated yesterday. So let's say I'm feeling a wee bit more optimistic. But then of course there's the US to bring me down again. Here at home, our newest presidential candidate, Rick Perry, has said that Ben Bernanke's quantitative easing is "almost treasonous." Bismarck is supposed to have said (apocryphally, alas) that "there is a special providence for children, drunkards, and the United States of America." I certainly hope so.
UPDATE: The Times and the markets are more downbeat about the agreement.
Tuesday, August 16, 2011
First we worried about one-size-fits-all policy; then it seemed that the ECB was actually engaged in one-size-fits-one, oriented entirely toward Germany; now growth in Germany and the eurozone as a whole has stalled (pdf). So now it’s one-size-fits-none.
It really is a race between America and Europe: who can make the worst of a bad situation. And both competitors are giving it their all.
FrédéricLN analyzes the behavior of governments of the Right and the Left in managing the French budget over the years, with corrections for growth effects and attention to the primary budget surplus or deficit (i.e., excluding service on the accumulated debt). I haven't examined his analysis carefully, but you may find the data useful.