The Corner

What Did She Mean By That?

The FT’s Wolfgang Münchau assesses who prevailed at the last EU summit:

[Italian prime minister] Mario Monti faced down the German chancellor and won the battle. He will survive a few more weeks or months in politics. It was clever of him to threaten a veto on something Angela Merkel badly needed. He had her in the corner. It was an example of classic EU diplomacy. But this was only the foreground spectacle. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all.

And peer behind the curtain is what Münchau does. It’s well worth peering behind the paywall to see what he says in more detail, but his conclusions should also be noted:

The most important event last week was probably not the agreement at the summit anyway, but the statement by Ms Merkel that there will be no eurozone bonds “for as long as I live”. My belief is that this statement reveals she is not serious about political union, to which she has been paying lip-service over the past few weeks. Her tactics remind me of the “coronation theory” of the 1980s: the Bundesbank used to say that monetary union was acceptable but only after full political union was completed. It was another way of saying never. I always suspected all this talk about long-term solutions might be a ruse. Now, it seems, we know.

If Ms Merkel is right and there are no eurozone bonds in her lifetime, the eurozone will not survive. Without eurozone bonds or a change in ECB policy, Italy’s and Spain’s debt – and eurozone membership – is not sustainable. That was as true on Wednesday as it is today.

I’m not so sure that he’s right about Mrs. Merkel. The best guess, I reckon, is that she remains a true believer in a far more deeply integrated EU, but that she will (despite all the storms) continue to  do everything she can to ensure first that its budgeting process is brought as close as it can be to that of the Germany that will be underwriting the whole enterprise. That alignment will be temporary,  a fantasy unmoored in political  reality, but, if on paper it will do, that may well be enough. But even if she doesn’t get as close to that as she would wish, I suspect that, if confronted with the alternative of a euro-zone collapse, she will blink—and sign up for whatever it takes to keep it alive.

And if you think that phrasing such as “best guess”, “suspect”, and “may well” betray a high degree of uncertainty about how this will turn out, you’d be quite right.