Thursday, November 10, 2011

'Merkozy' calls the shots in euro zone

LONDON: Europe spent decades searching for an inspirational leader. And it finally appears to have found one: 'Merkozy'.
By Jonathan Eyal, Europe Correspondent

The term was recently coined to describe the duo of German Chancellor Angela Merkel and French President Nicolas Sarkozy who effectively run the continent, disciplining misbehaving nations while rewarding those deemed good pupils.

The fate of Greece now rests entirely in Merkozy's hands: The German and French leaders put together the financial bailout plan for that stricken country, and when the Greek Prime Minister George Papandreou demurred, he was told that he could be kicked out of the European Union altogether.


To some extent, the emergence of the Merkozy couple is unsurprising. For France and Germany founded the European Union and have ruled it ever since.

Italian Prime Minister Silvio Berlusconi also discovered the power of Europe's ruling couple. With only a few hours' notice, he was recently summoned to appear before Merkozy, and ordered to cut his government's budget or face bankruptcy.

Mr Berlusconi complied, but the episode finished his political career: The Italian leader who survived numerous domestic scandals over his 'bunga-bunga' parties proved no match for Dr Merkel and Mr Sarkozy.

Even those who are outside the euro currency zone have felt Merkozy's wrath: British Prime Minister David Cameron was told by Mr Sarkozy to 'shut up' and stop complaining about the continent's financial condition. The French and German leaders no longer bother with diplomatic niceties.

To some extent, the emergence of the Merkozy couple is unsurprising. For France and Germany founded the EU and have ruled it ever since. The two leaders routinely meet before each European summit to coordinate their policies, and then present them to the other member states as accomplished facts.

As Europe's biggest economies, France and Germany now contribute about €370 billion (S$647 billion) to the bailout fund created to save the continent from disaster, more than all the other European countries combined. So, Mr Sarkozy and Dr Merkel are entitled to decide what is done with their money.

Besides, 'the euro area institutions were not designed for crisis management', points out a senior EU official; the Merkel-Sarkozy tandem is the only structure which works.

Still, Merkozy's grip over Europe is not as solid as it seems.

To start with, the personalities of the two leaders could not be more different. Dr Merkel is methodical and well-briefed, while Mr Sarkozy is an unpredictable improviser of the kind ordinary Germans find infuriating.

As the daughter of a Lutheran pastor, Dr Merkel does not appreciate Mr Sarkozy's 'Latin lover' behaviour, complete with frequent hugs and kisses. And Mr Sarkozy often jokes about Dr Merkel's demeanour: He recently giggled about the German leader's inability to lose weight. The link between the two is a political marriage of convenience, rather than a meeting of minds.

And despite the appearance of equality, Mr Sarkozy remains the junior partner. For the French economy is facing the same excessive budget deficits and high debts which plague the rest of Europe.

This week, Mr Sarkozy was forced to introduce new austerity measures in an attempt to maintain France's triple-A status with international credit-rating agencies, without which France will be shut out of financial markets. So, Mr Sarkozy is clinging to Dr Merkel's coat-tails out of desperation.

And Dr Merkel is happy to pretend not to notice, because this serves Germany's interests. As Europe's paymaster, Dr Merkel knows that she is admired and dreaded in equal measure.

By sharing power with France, she protects herself from accusations of dominating other European nations. Mr Sarkozy does the unpleasant talking, while Dr Merkel does the sums.

Still, the backlash against the Merkozy duo is rising. Mr Anibal Cavaco Silva, the President of Portugal, a country which had to be bailed out, recently expressed his public concern over the emergence of a 'board of directors, which treats European institutions with disdain'. Meanwhile, smaller but rich countries, such as Austria, Finland or the Netherlands, are angry that France and Germany no longer consult them, but still demand their cash.

Dr Merkel and Mr Sarkozy have tried to answer this criticism by co-opting into their magic circle a handful of other decision makers. The recently established 'Frankfurt Group' includes the bosses of the International Monetary Fund and the European Central Bank, as well as a handful of top EU officials. The group met no fewer than four times on the margins of the recent G-20 summit, including once with US President Barack Obama.

But other European countries dismiss the Frankfurt Group as just another Franco-German directorate, and remain determined to oppose it. On Monday, finance ministers of the 10 EU countries outside the euro zone organised their own separate gathering.

'This is not a club, just an informal meeting,' said Swedish Finance Minister Anders Borg. However, the implicit message was clear: France and Germany will not be allowed to act alone.

The real danger is that, in an effort to save Europe, Dr Merkel and Mr Sarkozy could tear up the continent's existing political arrangements without putting anything else in their place.

And, to make matters worse, they may also fail to rescue the euro.