ORIGINAL FRENCH ARTICLE: Le sommet franco-allemand ne convainc personne, pas même les marchés!
by Romain Silvi
Translated Monday 22 August 2011, by Derek Hansonand reviewed by
At the end of the Franco-German summit which was held at the French presidential palace on August 16, four key measures were proposed by Nicolas Sarkozy and Angela Merkel to fight the sovereign debt crisis. Just something to impress us? In preparation for the upcoming election campaigns of the French president and the German chancellor, respectively in 2012 and 2013, this summit was not, in fact, at all convincing. The expected measures will not see the light of day. Here are the four propositions advanced:
An economic government for the euro zone.
It would be a council of heads of states and government, meeting twice a year, “and more often if necessary.” This council would be headed by a president with a stable mandate of two-and-a-half years. Merkel and Sarkozy suggested that the present president of the European Council, Belgian Herman Von Rompuy, occupy the position. The proposal will be addressed by Paris and Berlin to their euro zone counterparts on August 17.
A tax on financial transactions.
This measure, which has long been demanded by altermondialist thinkers and popularized by economist James Tobin, is a very low tax on international movements of capital. Germany and France will propose it to their European partners in September.
Imposition of the budgetary “golden rule” throughout the euro zone.
The “golden rule” on a balanced budget, which is being adopted in France and is already in force in Germany, is to be adopted in the coming year by the 17 member-states of the euro zone. In France, the “golden rule” will write the principal of balanced government finances into the constitution. The proposal faces strong criticism in France.
A common tax on companies in France and Germany.
France and Germany are to set up a common tax on companies by harmonizing the tax base and the tax rate.
The markets remain unsatisfied.
The markets remain stony-faced vis-à-vis the measures proposed by the leaders of the two biggest euro-zone economies. Whereas the meeting organized at the French presidential palace was to blow a wind of confidence through the markets and financial organizations, worries as to sovereign debt and the economic growth figures that were unveiled on August 16 have continued to exercise a demoralizing effect. The players on the financial markets have criticized the lack of clarity of some proposals, notably with regard to the “golden rule.” Naturally, the announcement of a tax on financial transactions, although it was very vague, met with a cool reception on the stock markets. Thus on August 17 the European stock markets again lost ground (Frankfurt down 1.07%; London down 0.02%; Paris down 0.06%), as did the Tokyo stock market (down 0.55%) and the New York stock market (the Dow Jones index fell 0.68%). “The meeting of the French and German leaders failed to attenuate worries on the sovereign debt crisis in the euro zone,” was the reaction of Ker Chung Yang, an analyst with Phillip Futures in Singapore.
Neither “euro-bonds” nor a strengthening of the European Financial Stability Facility.
Berlin has firmly ruled out the system of euro-bonds, which Rome and Madrid insistently demanded. The system would have made it possible to mutualize the debts of the European countries by issuing common bonds. Nicolas Sarkozy declared that the system could threaten the stable countries of the euro zone. He has bowed to Merkel’s absolute refusal to see Germany penalized, as she sees it, by this measure. Strengthening of the European Financial Stability Facility has also been ruled out, although the markets were expecting it. “Investors’ worries probably are not going to be dissipated in the short run and pressure on European authorities could grow,” warned the strategists at Crédit Agricole CIB. Unemployment is not likely to dissipate in the short run, either.