It’s a crucial week for Europe as leaders embark on what many are calling a last-ditch effort to save the euro currency. The heads of the eurozone’s two largest economies, Germany and France, meet Monday in Paris, where they’re expected to agree on a master plan for all 27 EU leaders to sign off on at an emergency summit in Brussels at the end of the week.
Though both French president Nicolas Sarkozy and German Chancellor Angela Merkel now agree that European treaties will have to be altered to give institutions the firepower to deal with the crisis, many differences remain — and time is running out.
Merkel and Sarkozy — who have met so many times they’re now known as “Merkozy” — are expected to come up with a blueprint for saving the currency. In speeches at the end of last week, both leaders prepared their nations for major changes. This time they seem to be serious, says Hans Stark, head of Franco-German studies at the French Institute of International Relations.
“The changing of the treaties is necessary in order to transform the actual eurozone into a budgetary union. It’s the only way to save the euro,” he says.
Stark says if the European Central Bank is to play a role akin to the Federal Reserve in the crisis, and massively buy up countries’ debt, the EU must transform itself into a budgetary federation with tight fiscal rules and repercussions for slackers. But many nations fear a loss of power to Brussels — none more than France.
‘Better With Our Allies Than Alone’
In a nationally televised speech full of pomp and patriotism, Sarkozy reassured a packed auditorium Thursday night that France could not go it alone. He assured the French people there was nothing to fear, as he tried to convince them that France would have greater power within a more closely aligned Europe.
“We defend our sovereignty and values better with our allies than alone. That’s the biggest lesson of the 20th century,” Sarkozy said.
He called the French-German friendship the backbone of the European Union. Going further, he said the two nations must converge their economies into a core of stability and growth at the heart of the eurozone.
Speaking to the German Parliament the next day, Merkel echoed Sarkozy’s calls to create a tighter fiscal union. But she repeated her opposition to issuing joint euro bonds.
There are still differences between France and Germany on how to save the euro, says Stark. But Franco-German agreement is key, and not just because the two countries represent 50 percent of the eurozone’s GDP.
“The euro zone is divided into two zones — the northern and the southern zone,” Stark says. “In the northern zone, budgetary differences are less important, and Germany is kind of the speaker of this zone. France is part of the southern zone, where the deficits are much more important. So if we can succeed in overcoming the Franco-German opposition, it’ll also be possible as well to overcome the opposition between the southern and the northern part of the European union.”
Some analysts see hope in the latest monumental efforts by Paris and Berlin to tackle the crisis. Another good sign came last week when European Central Bank head Mario Draghi signaled that the ECB could take aggressive measures to stem the crisis. All of this hinges on political leaders finally getting it right at this week’s summit.
Guntram Wolff, an economist in Brussels, admits that treaty changes could be long and laborious. But he says a solid commitment from European leaders to simply undertake profound changes could calm the markets.
“The treaty change will be an instrument in restoring confidence among the governments in the eurozone and thereby allow the institutions that we have, including the ECB, to credibly intervene in the market and stop basically a full blown financial crisis,” Wolff says.
The stakes couldn’t be higher for EU leaders when they gather Friday in Brussels. As Sarkozy put it, “What will remain of Europe if the euro disappears? Replying to his own question, he said. “Nothing.”