The EU will hold one of its regular summits, and the participants are all patting themselves on the back because they don’t believe they have an immediate near-term crisis to deal with. Except they do. That crisis isn’t about whether or not Spain will accept a bailout (the Spanish government is reluctant, because they would be forced from the outside to impose conditions they have largely pre-emptively proposed from the inside, so who cares?), or whether or not Greece will exit the euro. The crisis concerns the prospect of diminished economic capacity for a prolonged period, ruining the lives of tens of millions of Europeans for decades to come, for no legitimate reason.

French President Francois Hollande actually touched on this prior to the summit.

François Hollande, the French president, has warned for the first time that the Paris-Berlin motor driving Europe could stall over deep differences on how to resolve the euro crisis, insisting on a climbdown by Angela Merkel in her emphasis on austerity and the surrender of national powers to tighten fiscal discipline.

While the Franco-German relationship was the driving and “accelerating” force of the EU, Hollande said, “it can also be the brake if it’s not in step. Hence the need for Franco-German coherence.” […]

He said: “I’ll do everything for Greece to stay in the euro and have the resources it needs by the end of the year, without it having to be necessary to inflict new conditions other than these already admitted by the Samaras government.” But Hollande said he also felt for the Spanish and Portuguese people “who had paid dear for others’ excesses”.

“The time has come to offer a perspective beyond austerity”. He said Spain must know the precise conditions for getting financing agreed in June. There was no reason to make its burden heavier.

Just as France is drawing red lines on austerity and sovereignty, however, Germany clearly wants to extend that loss of sovereignty for the purposes of giving them veto power over national budgets, which will almost certainly lead to more austerity. Finance Minister Wolfgang Schaeuble wants an “Economic and Monetary Commissioner” to basically monitor national budgets and veto them where they deem necessary. The result would be a stronger fiscal union than the United States in terms of the budget, and a far weaker one in terms of fiscal transfer. So the southern countries get none of the benefits of a fiscal union and all of the hardships.

Hollande rejected this:

Asked whether in order for a more integrated political union it might be necessary to draw up a new European treaty and put it to referendums, Hollande shot back with a reference to the no vote on the European constitution in France in 2005. “If I remember rightly, we tried that formula in 2005 and it didn’t produce the results we were hoping for. Because before launching into institutional mechanics, Europeans must know what they want to do together. The content is more important than the framework,” he said.

He insisted France would “tirelessly” champion the growth agenda – “this compromise between getting out of debt and growth” – without questioning the need for budget discipline, which had been made “absolutely necessary” by the sovereign debt crisis. “Today, recession is as big a threat as deficits.”

This mindless insistence on austerity, and an inability to come to terms with the structural deficiencies of the Eurozone, will just consign the continent to more and more pain. Some of the integration measures, like common deposit insurance, make sense. But the budget overseer without fiscal transfer policies is just insane.

David Dayen

David Dayen

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