Winners and losers

While national governments and the European Council’s president strengthened their grip on economic governance, the European Commission was sidelined.

The European Council took some historic decisions last week. The eurozone leaders created the first rescue mechanism for a country of the eurozone that gets into financial difficulties, effectively navigating around the ban on a bail-out in the EU’s rules on monetary union. In addition, the leaders of the 27 countries have agreed in principle to tighten economic and budgetary surveillance of each other’s economic and monetary policies.

At the end of a summit that produced such historic decisions, it is clear that there were winners and losers in the struggle.

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Angela Merkel, Germany’s chancellor, won the battle to get the International Monetary Fund (IMF) involved if help has to be provide for Greece, prevailing over Nicolas Sarkozy, France’s president. She prevented the use of German taxpayers’ money to provide subsidised loans to Greece. She ensured that pressure will be maintained on the Greek government – and on other eurozone countries – to implement reforms. She won a commitment to toughen up economic and budgetary surveillance in the eurozone, including treaty change if it is needed.

Reforms

Merkel said that there should be reform of sanctions under the stability and growth pact, which is meant to ensure that eurozone members respect a limit on budget deficits of 3% of gross domestic product. Fining a country that is already in deficit is not an attractive option.

Jean-Claude Trichet, the president of the European Central Bank (ECB), was thought to be opposed to IMF involvement, fearing that it might be too easy for Greece, or any other eurozone country, to go to the IMF. But afterwards he said that he was “extremely happy” with the deal, which he described as a workable and courageous decision that preserved the obligation on the governments of the eurozone to keep their public finances in order.

Sarkozy’s ‘victory’

Sarkozy may have lost the argument over the IMF, but he claimed victory in that eurozone leaders had acceded to his long-standing demand for the European Council to become the economic government of the eurozone, a political counterweight to the ECB’s focus on monetary policy. But only the French version of the eurozone statement and the summit conclusions refers explicitly to economic “government” (see left).

Undoubtedly the deal showed the importance of the Franco-German alliance. As long as those two leaders did not agree, there was no deal. Conversely, what Merkel and Sarkozy agreed upon was endorsed by everyone else.

That said, Herman Van Rompuy, the still-new president of the European Council, was a clear winner in the institutional manoeuvring. He played his part in brokering the negotiations and the Council emerged with a strengthened role in economic policymaking. Van Rompuy will lead the task-force that is to work on strengthening economic governance.

In addition, Van Rompuy chaired the meeting of eurozone leaders that approved the deal for Greece. It was only the second such meeting of the eurozone countries at the level of government leaders (the first was in October 2008, before Van Rompuy’s position had been created). The claims of Jean-Claude Juncker, Luxembourg’s prime minister, who chairs meeting of the eurozone finance ministers, or José Luis Rodríguez Zapatero, the prime minister of Spain, did not get a look in. Zapatero was reduced to the role of a bystander, in part because Spain is in a weak economic position and in danger of needing might assistance itself.

José Manuel Barroso, the president of the European Commission, also seemed to be away from the heart of the action. Although he had called on Merkel and other eurozone countries to agree a deal, he was sidelined. The Commission will have a role in co-ordinating any package of bilateral loans as well as working with the task-force on toughening economic and budgetary surveillance. But at the moment the EU is being run by the national governments and while Van Rompuy is growing in stature, Barroso is perhaps losing influence.

In theory, there was one other winner from the negotiations: Greece is given the assurance of eurozone assistance, which is supposed to make servicing its debt easier.

But such an assessment can only be an interim verdict. Trichet said he was confident that the mechanism agreed would not be needed and that Greece would “progressively gain the confidence of the markets”.

If Greece does not do so, then, not withstanding all those historic decisions, the eurozone as a whole will have lost.