In the run-up to the EU summit in Brussels this Thursday, ECFR staff members from Paris, Berlin, Rome, Warsaw, Madrid and London have contributed to our “View from the Capitals” series. What do our experts think of the respective national positions ahead of the European Council, and what are the governments most concerned about?
The view from France - Thomas Klau
Faced with strong German resistance to core French policy goals the government in Paris has lowered its expectations of the forthcoming EU summit. A full agreement on the modalities of a Eurozone banking union seems out of reach, essentially because of Germany’s resistance to submitting its local and regional banks to European control. With its main priority out of reach Paris instead hopes to secure a reaffirmation of the full objectives and calendar for the banking union so that its legal start can be secured for early 2013, allowing the subsequent direct recapitalisation of the weakest parts of Spain’s banking sector.
Paris has restated its preference for some form of debt mutualisation, without hoping to sway Berlin, and the issue of further sharing of financial, budgetary and political sovereignty in the Eurozone may lead to a stand-off in Brussels. France is cool on the German idea to empower a super Commissioner on monetary affairs with the power to veto national budgets. In an interview with several European newspapers, President François Holland proposed instead monthly meetings of Eurozone leaders and a longer and stronger mandate for the chair of the Eurozone group of finance ministers. French officials have been briefing that the euro crisis is less likely to dominate proceedings, thanks to the easing of market pressures and the substantial divergences between key participants.
Instead, October is expected to be a ‘holding summit’, with issues such as banking supervision, help for Spain, further sovereignty sharing within the Eurozone and austerity versus flexibility debated but most tough decisions postponed to December. Paris is however hopeful that an agreement in principle can be reached on granting Greece more time for spending cuts and other austerity measures – an issue on which the German government has shown some flexibility. The main danger is that governments (again) miss the opportunity for bold action to restore investor confidence and boost growth prospects in the Eurozone, fuelling recessionary tendencies and preparing the ground for a worsening of the overall economic situation in 2013.
The view from Germany - Ulrike Guérot
Berlin’s focus for this European Council will be to see if a breakthrough can be made on more fiscal integration through a banking union and more political integration. Both subjects are being fervently discussed in Germany, and Mrs Merkel will be looking for political partners on subjects such as a more involved role for the European Parliament or special votes for Eurozone MEPs on budgetary and fiscal questions.
Over the summer Germany suggested the launch of a new Convention and an intergovernmental conference to deal with European democracy (which in Germany eyes must have more parliamentary legitimacy and collective control over national spending). Although the idea of a Convention was not greeted with enthusiasm, Berlin is clear that treaty change will be required as fiscal and political integration are linked.
The worst outcome for Germany at this Summit will be for the way towards fiscal federalism through a full-fletched banking union to be paved, but without an accompanying political component. This could include Eurozone MEPs (for democratic legitimacy), budgetary oversight from the relevant EU commissioner, and an enhanced role for the European Court on legal budgetary disputes.
As the Council takes place at a time of increased concern about the economic situation, Berlin is keen to avoid any discussion of a Spanish rescue programme getting out of control in its domestic press. It therefore needs to demonstrate to its domestic audience that there is control within the EU system as to where the (ESM) money goes and how it is used. This is the origin of the German request (repeated by Wolfgang Schäuble yesterday) for strengthening the position of the EU budget commissioner.
Berlin would also welcome discussion of the relationship between the Eurozone and the EU27, taking care to avoid any split while making sure that deepening of the Eurozone goes ahead. Much depends on the Franco-German consensus on a two-tier Europe (which seems hard to find).
The view from Italy - Silvia Francescon
Success for Italy would involve a swift implementation of the decisions the Council took in June that pave the way towards the establishment of a single European banking supervision system (operational by January 2013), although the AAA rated Eurozone countries seem lately to have taken a step back from this.
Italy is concerned about friction over a possible tax on financial transactions. It is in favour of this but would have preferred to see more countries support it. The implementation of the Compact for Growth and Jobs decided by the June Council is highly likely, and sanctions in place against the Syrian government should be significantly increased through the publication of two new regulations.
The Italian government also hopes to disengage the salaries of the public employment from the Harmonised Index of Consumer Prices (HICP), an action that would enable the government to decrease the expenses related to public administration.
The view from Poland - Konstanty Gebert
Success for the Polish government would mean several things. Firstly it would involve guarantees that the Eurozone budget was separate (and not derived) from the existing EU budget. Even if such guarantees might prove difficult to enforce, assent to their weakening could eventually be traded for other desirable goodies. Secondly it would be a voting seat on the board of the banking authority for pre-in countries such as Poland (which are in favour of it and would submit to such strictures as might apply). Thirdly it would involve the strengthening of European institutions, for instance through the introduction of mandatory European Parliament or state parliament economic debates to counterbalance the unavoidable tilt towards intergovernmental mechanisms. Of these the second is the most likely.
The nightmare scenario for Warsaw would be a wishy-washy summit that was unable to take decisive measures to save the euro. Poland is unhappy with an relegation to the second tier of European integration, but is willing to pay that price temporarily for the sake of rehabilitating the Eurozone.
The view from Spain - José Ignacio Torreblanca
Spain is frustrated by Germany, Austria and Finland backpedalling from the agreements reached last June on the banking union. In Spanish eyes it seems as though Germany (for electoral reasons?) has got cold feet and wants to make sure that banking union is irrelevant as an instrument to deal with the current crisis. Madrid believes it is vital to proceed with the direct recapitalisation of banks in order to avoid adding yet more debt servicing to its budget and further penalties from both the EU institutions and markets. Spain therefore wants a clear signal on the June agreements.
Without a clear message from the Summit, uncertainty will return to the markets making Spanish risk yields soar and forcing Spain to ask for a rescue. Seeing the precedents in Portugal and Greece, it is hard to argue that rescue is the beginning of the solution. Rather it seems to be the beginning of new social and political problems.
The view from the UK - Mark Leonard
The British delegation approaches this summit with a sense of impending doom. Its attention is less focused on Brussels than on the UK Independence Party (who threaten to come first in next year's European Parliamentary elections) and the restive mood among Conservative Party backbenchers.
From a technical perspective there is a measure of confidence, as British diplomacy has recovered from the low-point of last December's summit (government officials claim to have got 90 per cent of what they wanted on banking union).
The October council is seen as round one of a three round fight that will decide the MFF (ie the budget for the next five years), banking union and the idea of an IGC to examine possible changes to European level treaties. The UK government sees this as a the beginning of a two-tier Europe and the government are deciding where they want to exit (the 130 Justice and Home Affairs provisions); where they are happy with a two-tier europe (talk of a two-tier budget); and where they will fight to keep a one tier europe (single market).
The debate on banking union is seen as a dry run for what happens to the single market if the Eurozone really integrates. The Commission's proposal is that the ECB is the sole regulator and that the Eurozone will vote as a bloc within the Council.
The British government is getting ready for a choppy autumn where it will wield the veto many times. It does not seem to have any vision for Europe or even for British influence within a changing EU. What is more, by going into the autumn threatening to veto the EU budget, banking union and an IGC means that it risks alienating a lot of potential allies in the EU without satisfying the Eurosceptics at home.
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