Thursday, May 10, 2012

Euroland: Lost, Fringe or FlashForward?

Lost in Euroland: Next key episodes: May 15: Hollande assumes office, May 25: Bundestag vote on Fiscal Compact has been postponed until mid June (& Italy?), May 31: Irish referendum. The Euro-saga continues!

One would think that the Hollande win last Sunday would be enough to create the conditions for putting aside the existing Fiscal Compact (agreed a few months ago but in need of ratification by at least 9 of the Euro 17) to be replaced by a compact of a quite different philosophy, less inflexible, less sclerotic, one that does to rely on the dogma that austerity is the road to growth. One that allows member governments, maybe via the Eurogroup, much more leeway in conducting economic policy.

Yet Angela Merkel insisted  last Monday that ""It is a matter of principle in Europe that following elections, be they in small or large countries" (she is obviously referring to Greece and France - yet actually Greece is the 9th in population member of the EU27, so not a small but a medium size country) "we do not renegotiate what's already been agreed". Crowning her declaration of Euro-principles with the warning: "Otherwise we could not work together in Europe". Which could beg the uncomfortable question: Who can or wants to work together with Angela Merkel in Europe (EU or Eurozone or Europlus)?

What makes the German PM so determined (some would say inflexible, even scary), in spite having just lost control over the German state of Schleswig-Holstein, to the SPD and the Greens, and after not only the break up of the Merkozy via Hollande's win and in the face of his intent to renegotiate the Compact, as well as the loud anti-austerity elections results in Greece as well as local elections in Monti's Italy?

A crucial point is whether the SPD and Greens will bow to Angela Merkel and her driving economic dogma, some say it is Ordoliberalism, some say it is Austerity hawkishness, and vote for the ratification of the Fiscal Compact. The vote in the Bundestag was supposed to take place on May 25 but press reports have indicated that the FDP-CDU/CSU.coalition has decided to postpone it at least until the middle of June (that means the original date of the Bundesrat vote, June 15, is likely to change.  Also the effects from a potential No in Ireland on May 31. It will not veto the Fiscal Pact for the rest, but it may provide even more socio-political anti-austerity impetus than today.

Maybe the fact that her popularity, which pools above CDU/CSU results, propagated by her narrative (as well as that of certain German media) regarding the causes of the Euro crisis (the PIIGS) makes her feel that she has the German public opinion of her side, 25% of the total population of the Eurozone!

After all, in spite the Hollande win, conservatives (right of center) still govern in Euro member states representing 54% of the Eurozone population (including Portugal and Spain), compared to the left of center's 28% and an 18% (Italy and Greece) that falls under a "it's complicated" status (with Monti actually acting  pretty much as a right of center PM, see the concurrent ratification vote in Italy with Germany on May 25, a sign of an emerging "Merkonti" duet to replace the loss of the Merkozy one?).

Are SPD and the Greens Ordoliberal enough to ratify the Fiscal Compact in return for merely a growth pact offset? Or is it that in spite the developments in other member states, they still do not feel that they can challenge Merkel in front of the German public opinion?  Maybe the election results in the German state of North Rhine-Westphalia this Sunday, May 13, could be a turning point. Or maybe not.

The postponement of the Bundestag vote on the Fiscal Compact from May 25 for at least 3 weeks seems to indicate that something is going on. Either related to Hollande's stance or to an SPD/Greens stance, or both or neither!,
The plot thickens.

Here is a calendar of some key events in Europe that could affect the austerity vs growth balance:

May 13: Elections in the German state North Rhine-Westphalia
May 14: Eurogroup Meeting, Brussels, Belgium
May 15: Francois Hollande officially assumes the office of the President of France, France
May 15: Meeting of Economic and Financial Affairs Council (ECOFIN), Brussels, Belgium
May 16: Governing Council meeting of the ECB in Frankfurt
May 25: Bundestag ratification vote on Fiscal Compact - postponed til mid-June or later
May 25: Ratification vote on Fiscal Compact by the Italian Parliament (??)
May 31: Irish referendum on the Fiscal Compact "treaty", Ireland
June 6: Governing Council meeting of the ECB in Frankfurt
June 10 and  17: Legislative elections for the 14th National Assembly, France
June 10 or 17: Date for potential new Greek parliamentary elections, Greece
June 15: Potential dare for Bundesrat ratification vote on Fiscal Compact, Germany - probably postponed as a result of the postponement of the Bundestag vote.

Parts of this analysis were quote in the this blog post (in Portuguese):

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