Overnight it appeared that German Chancellor Angela Merkel and French President Nicolas Sarkozy had appeared to put their differences aside to come up with a strategy to tighten economic cooperation in the European Union. The duo have proposed a new EU treaty that would impose automatic sanctions on Eurozone countries that break debt rules. These developments have made the possibility of the European Central Bank (ECB) becoming a lender of last resort more realistic, and while both leaders may have remained mum on this prospect, it is expect that the ECB would play a critical role in aiding the stablisation of the Euro and development of the foundations of a fiscal union.
Merkel and Sarkozy have also called for the launch of the European Stability Mechanism, which is the permanent bailout fund for the Eurozone, to be brought forward to next year instead of 2013. It was suggested that decisions concerning the fund should be made by a majority vote, as opposed to a unanimous vote by governments.
But doesn’t this seem all a bit too familiar? France and Germany rutting out a plan together only to have those pesky other member states undo their good work through treaty negotiations and processes of ratification? Merkel and Sarkozy’s initial plan appears to be to renegotiate the Lisbon Treaty to include the new Eurozone deal, however, history dictates that this process is not as straightforward as it seems.
In the past, the ratification of EU treaties by individual states has often been a timely and frustrating process. For example, it took two referendums for the Irish to ratify the Lisbon Treaty in 2008 and this followed two referendums for the Nice Treaty in 2001. While some of us may call this democracy, some European elites such as Merkel and Sarkozy see this as troublesome; these attitudes towards European cooperation is known as “dirigisme”.
Dirigisme is a top-down approach to European integration; this is where heads of governments make the decisions and the popular vote is viewed as being troublesome and uninformed. Proponents of dirigisme could argue that it was intergovernmentalist approaches that lead to the current debt crisis, and that another round of referendums would simply hold up what is needed to be done to save the Eurozone. And it does appear that Merkel and Sarkozy are heading towards a more dirigsme approach with a suggestion that if it is too difficult to get all 27 member states to ratify the changes to the Lisbon Treaty, a new treaty would be drawn up exclusively for the 17 Eurozone members. However, this still does not eliminate the fact that most of these 17 countries will need to hold referendums to ratify the new treaty (and note that the Republic of Ireland is part of the Eurozone).
So what’s next? It is difficult to predict as history does suggest another round of endless negotiations and possible multiple referendums will occur. However, the Irish may take a different approach this time around; on the same day as the new Franco-German pact, the Irish Government announced spending cuts of €1.4 billion which will be followed by an increase in tax rates to combat the biggest budget deficit in the industralised world. And the Irish are only in their first year of an eight-year long cycle of spending cuts and tax increases as part of the terms of its bailout by the EU and International Monetary Fund.