naked capitalism

On the one hand, as we noted in an earlier post, EU president Herman Van Rompuy has made no bones about his view that the EU needs to have more clout in economic affairs. Per the Telegraph:

Herman Van Rompuy, the EU’s new president, has submitted a text calling for the creation of an “economic government” that shifts responsibility for economic planning from national authorities to the “EU level”

But the Independent has a story up, “EU President’s secret bid for economic power,” that makes this effort sound more like a land grab:

The new President of the European Council, Herman Van Rompuy, is using the financial crisis sweeping the eurozone to launch an audacious grab for power over national budgets, leaked documents reveal.

The Independent has seen a secret annexe to the letter being sent by Mr Van Rompuy to European Union heads of government inviting them to the summit to be held tomorrow in Brussels. In an early and muscular assertion of authority over national governments and over the EU Commission, the Van Rompuy note states: “Members of the European Council are responsible for the economic strategy in their government. They should do the same at EU level. Whether it is called co-ordination of policies or economic government, only the European Council is capable of delivering and sustaining a common European strategy for more growth and more jobs.”

Mr Van Rompuy states that “the crisis has revealed our weaknesses”, adding: “Budgetary plans, structural reform programmes and climate change reporting should be presented simultaneously to the Commission [his italics]. This will provide a comprehensive overview.”

How one reads this could easily devolve into those “one man’s terrorist is another man’s freedom fighter” debates. On the one hand, the pragmatists assert that there is a great deal to be gained by having the EU become more cohesive and successful, and national sovereignity will inevitably have to be compromised. On the other, this very move has been deferred as long as humanely possible precisely because it was politically unpalatable. Now to have it take place, with the first act in some member states being an austerity regime….this is not a great way to make the medicine go down. And recall the after-effect of IMF austerity regimes in Asia after its 1997 crisis. It wasn’t just the “client” states that resolved never never to have anything to do with the IMF, but even mere bystanders like China came to the same conclusion, that it was necessary to build up big foreign exchange reserved to avoid what befell Indonesia and Thailand. Admittedly, an austerity regime for Greece (and the other members of “Club Med”) may not be as draconian, but Greece is also in much closer proximity to countries that will not be put on a short leash, which could stir even more resentment.

And of course, the fact that this story was leaked, with the hope of making waves, also says there will be a great deal of tough discussion and (hopefully) compromise before any deal can be reached.

More from the Independent:

An EU source explained: “It has become clear to everyone that this economic crisis can’t be solved by individual member states, such as Germany helping out Greece. What we need is the same kind of mechanism that we have now imposed on Greece in order to monitor and survey eurozone countries. So the idea is to put all European economies under surveillance. You can expect some important decisions to be taken this week.”

In a highly unusual move, the president of the European Central Bank, Jean-Claude Trichet, has broken off from a meeting of central bank governors in Sydney to return to Europe…

The concern being felt in the highest circles of the EU about the “contagion” sweeping through Greece, Spain and Portugal is also clearly displayed in Mr Van Rompuy’s confidential note: “The crisis has revealed our weaknesses. Our structural growth rate is too low to create new jobs and to sustain our social systems.”

Referring to the fact that the EU has no way to resolve a budgetary crisis that affects other members states, Mr Van Rompuy goes on: “Recent developments in the euro area highlight the urgent need to strengthen our economic governance. In our intertwined economies, our reforms must be co-ordinated to maximise their effect.”…

The financial crisis comes as the EU’s three presidents jockey for position. Mr Van Rompuy is permanent President of the European Council (the job once thought tailor-made for Tony Blair), while the Spanish premier, José Zapatero, is the President of the Council of the European Union and José Manuel Barroso is President of the European Commission. President Barack Obama recently snubbed a proposed spring EU-US summit out of frustration at having to deal with the confusing troika.

The summit will be held away from the usual redoubts of the Euro bureaucracy, in Brussels’ Solvay library. “Van Rompuy wanted to create a far more intimate atmosphere without an army of advisers,” a source said. “There are a lot of tensions between member states right now, which he is why he decided to get them to talk in an open, friendly setting, starting with aperitifs. The idea is to have a proper brainstorming session and hear everyone’s thoughts.”

Yves here. This is an important juncture. Even though the subtext is that there needs to be some sort of EU deal for Greece and its Club Med confreres, it isn’t just getting to a deal, but the quality of the arrangement that matters for the long term.