It’s hard to tell whether the story at the Guardian, based on a memo apparently leaked by Germany’s finance ministry, is overstating the situation in contending that changes Germany will demand for the euro regime could require a Lisbon treaty negotiation. From the article:
Following Greece’s debt emergency and with the euro in the throes of its worst crisis of confidence, Berlin also tabled a nine-point plan rewriting the euro regime to include legally enshrined budget deficit ceilings in all 16 member countries.
The German demands, in a finance ministry paper obtained by the Guardian, could require the EU’s Lisbon Treaty to be renegotiated, presenting David Cameron with a dilemma over whether this would trigger an EU referendum in Britain…
n what looked like a concession to her centre-left opposition before a crucial vote in Berlin today on the €750bn (£642bn) security blanket for the fragile currency, she [Merkel] said she would fight for a global financial transactions tax at the G20 meeting in Canada next month.
[Finance minister] Schäuble argued that if the G20 effort failed there should be a European tax and if that ran into resistance – not least with the British – he would recommend it for the 16 countries of the eurozone…
“The crisis in Greece has brutally exposed weaknesses in European monetary union,” says Schäuble’s paper. “Monetary union is ill-equipped to deal with the extreme scenario of sovereign liquidity and solvency crises.”…
Schäuble has dropped initial proposals that debt-ridden delinquents be kicked out of the single currency. But he argued that countries in dire straits must be allowed to restructure their debt or default “in a managed way”. It was not clear whether such a country would need to quit the euro. Also, national budgets should be peer-reviewed by specialists at the European Central Bank or “independent” experts to ensure budgetary rigour and adhesion to a revamped Stability and Growth Pact, the currency rulebook.
Some of these changes would need the EU treaty to be reopened, requiring the assent of all 27 members, whether in the euro or not.
I don’t see any related commentary in the blogs in my RSS reader, and while many news stories mention the Lisbon Treaty, SimialarlyI didn’t see any confirming this thesis (but there were a LOT of articles, so I easily could have missed one). Indeed, commentary seems to take the opposite tack. From Reuters:
There is also no appetite for treaty change to reinforce the budget rules, after the EU spent almost a decade securing agreement on the Lisbon treaty reforming its institutions.
From the Deccan Chronicle:
It is premature to sing dirges for the European Union (EU), but the path-breaking grouping that blazed a new trail after World War II and took a war-spattered Europe to a new trajectory of peace and prosperity is facing an existential crisis. What started as Greece’s financial meltdown impacting on the common euro currency has spawned an unprecedented soul-searching for answers.
It would appear that the EU has exhausted itself in tackling the Herculean task of completing the Lisbon Treaty process, itself a pale copy of the original new constitution rejected by French and Dutch voters in referendums.
Guest blogger Jacob Funk Kirkegaard at The Baseline Scenario similarly assumes renegotiation of the Lisbon Treaty is a non-starter:
But that prospect does not exactly lie around the corner. No revision of the Lisbon Treaty (which would be required for this scenario) institutionalizing regular budget transfers will be passed by the EU or the key euro-zone members any time soon…
Without a unified fiscal or political authority, the European house does remain “half-built.” But now the world gets to find out whether the European project is based on a fundamentally flawed design or whether it works when member countries actually stick to the rules.
Yves here. Unfortunately, I do not read German, so I can’t scan the relevant papers for confirmation. And it may be that the German demands could be handled in the current framework.
If not, this is a major development, even more of a blind-siding than the German announcements on sovereign CDS and stock shorting. The initial reaction is likely to be negative, since this would be a big wild card, and Mr. Market does not like uncertainty.
The reason for the lack of media notice may be that the German demands that would trigger a Lisbon Treaty renegotiation are deemed unlikely to go anywhere. Reader input would be very much appreciated.