The Great Debate UK

Capitalism and democracy under threat from euro zone crisis

By Laurence Copeland. The author is a professor of finance at Cardiff University Business School. The opinions expressed are his own.

It takes quite a lot to make me feel sorry for politicians, especially the European variety, but I must say that Nicholas Sarkozy and particularly Angela Merkel have a right to be livid at the news that the Greek government now proposes to hold a referendum on whether they will agree to be given another gigantic dollop of aid. Having only reached agreement (of a very vague kind) at last week’s summit in the early hours of the morning, you can imagine how the French and German leaders must have felt when they discovered that their marathon negotiating sessions may all have been in vain. It seems the Greeks are now too wary of foreigners bearing gifts to accept their largesse without weeks or months of prior deliberation and debate.

The acceptance of the referendum proposal is apparently not a foregone conclusion, which is just as well, since it is plainly insane.

First, consider the wording of the referendum question. Opinion polls appear to show that Greeks remain keen on staying in the EU (and maybe even in the euro zone), so as things stand at the moment the outcome could be a majority in favour of rejecting the deal, but staying in the EU.  But is this option still open to Greece? If not, the Greek government could end up with a mandate to follow a road that is already clearly blocked.

To pre-empt this scenario would require some sort of clear statement from Brussels about whether they would be willing to allow Greece to stay in the euro zone and/or EU if it rejected the latest round of austerity measures.

Even supposing the details of the referendum are sorted out, what then? How long is all this supposed to take? The vote could hardly go ahead before mid-January at the earliest. What on earth does Mr Papandreou think will be happening in the markets in the meantime?  Does he think they will simply sit on their hands and wait patiently for Greek democracy to grind through the gears?

In reality, the momentum of this crisis is so inexorable that you can be quite sure that the deal currently on offer will have become totally irrelevant by the time any referendum is held, if the offer hasn’t anyway been withdrawn by the time you read this.

German Opel rescue tests EU road rules

– Paul Taylor is a Reuters columnist. The opinions expressed are his own –

Mon Dieu! Are the Germans starting to behave like the French?

Berlin’s efforts to salvage carmaker Opel from the wreckage of U.S. auto giant General Motors pose as big a challenge to Europe’s single market as French attempts earlier this year to tie loans to its carmakers to keeping jobs and factories in France.

The European Commission, which enforces EU competition rules, made President Nicolas Sarkozy drop any formal condition on the aid to Renault and Peugeot. But it seems ill-placed politically to stop the German juggernaut, even though the deal seems to be pegged to keeping German factories open and making any job cuts and closures elsewhere.

Facing a general election in September, Chancellor Angela Merkel wants to save Opel by providing 1.5 billion euros in bridging finance until it can be taken over by private investors backed by several billion more euros in state loan guarantees.

Federal and state leaders have pushed the suitors into a bidding war to preserve Opel’s 25,000 jobs and four production sites in Germany in preference to other GM plants in Britain, Belgium, Spain and Poland.

That amounts to using German taxpayers’ superior financial muscle to skew Europe’s level playing field. It is not only unfair to European neighbours but also to other German and European car manufacturers, under market pressure to reduce huge overcapacity in the sector.

from The Great Debate:

EU enters lame duck year amid challenges

-- Paul Taylor is a Reuters columnist. The opinions expressed are his own --

The European Union is entering a lame duck year just as new challenges are mounting from Israel's assault on Gaza, Russia's gas cut-off to Ukraine and the impending inauguration of U.S. President Barack Obama.

The EU's active crisis management in the Georgia war and the global financial meltdown last year under the energetic leadership of French President Nicolas Sarkozy was an exception, not the dawn of a new, more effective Union.

Europe now faces 12 months of stasis with two peripheral small countries - the Czech Republic and Sweden -- holding the six-month rotating presidency, EU legislation on hold because of European Parliament elections in June, and the European Commission winding down to the end of its term in November.

Domestic politics in key member states will also constrain EU initiatives. Germany, the biggest member state, has a general election in September in which the two major parties in its ungainly grand coalition will be fighting each other.

That seems to preclude agreement on bold economic stimulus measures or foreign policy risk-taking. Europe will also be held in check for most of the year by a second Irish referendum, expected in October or November, on the EU's Lisbon treaty on institutional reform designed to give the bloc stronger leadership and a fairer decision-making system.

EU leaders will be careful not to do or say anything that could jeopardize the chances of reversing last year's "No" vote.