GERMANY:GERMAN CHANCELLOR Angela Merkel left Brussels yesterday accentuating the positive, insisting that reaching a deal in Brussels without Britain was not a second-best solution for euro stability.
Ahead of the summit, Berlin pushed for full treaty change involving all 27 countries.
Yesterday the German leader said that, despite uncertainty over its institutional and legal basis, the agreement of the euro zone 17 plus other non-euro states represented the same “qualitative” leap.
“We would prefer to have everything regulated in treaties but what counts for me ... is that we were able to achieve everything we wanted for the euro,” said Dr Merkel after the summit.
“The EU of 27 would have been all right by me if Britain had said Yes. But we are in a crisis, and we have managed to push through quickly what we see as indispensable.”
The German leader framed yesterday’s agreement as the latest in a tradition of inter-governmental deals that eventually found a home in EU law.
Berlin’s thinking is that the stability union deal could be inserted into the treaty for the permanent bailout (ESM) ahead of ratification next year.
This would, according to Dr Merkel, create a “nucleus of a stability union” for bedding down in European treaties “as soon as possible”.
To sell the deal, Berlin draws parallels to two previous accords: the Schengen agreement for passport-free travel, which began as an inter-governmental co-operation, and the Maastricht Treaty paving the way to the euro, agreed exactly two decades ago yesterday.
“It’s very interesting that 20 years later we have recognised that the economic and financial union needs to be put on a more stable basis to overcome the weakness of the common currency,” said Dr Merkel.
“Britain didn’t want to take part. We’ve always respected that yet Britain has always played a positive role.”
German officials said they were confident London would not raise legal objections to the inter-governmental group using existing EU institutions and facilities. Given the aspiration for this inter-governmental deal to end up in EU treaties one day, Dr Merkel said “it’s only right to have access to EU legal advisers and secretariat”.
After piling on pre-summit pressure for a “grand bargain”, rejecting “a series of tiny steps”, German officials fell back to their original narrative yesterday afternoon: that it would be a long and rocky road to fiscal salvation.
“The stability union will be developed further, step by step, but the breakthrough has been achieved,” said Dr Merkel.
Despite her insistence to the contrary, yesterday’s deal marked another evolution in her position in the euro zone crisis, most significantly on the highly-political issue of private sector involvement (PSI) in bailouts.
Berlin’s demand for PSI during talks on the last Greek bailout triggered a volatile market reaction. Yesterday Dr Merkel said that future PSI would defer to “IMF principles”.
In addition, Berlin has shifted its line to allow temporary and permanent EU bailout mechanisms, EFSF and ESM respectively, to operate in parallel.
It insists the total funding will not exceed €500 billion, but EU leaders have agreed to look at that in March.
With an eye on German voter concern about a ballooning bailout bill, Dr Merkel was under pressure to deliver progress towards a “stability union”.
Instability threatens her coalition in Berlin next week thanks to an internal vote on the ESM forced by a bailout critic in Dr Merkel’s junior coalition partner, the Free Democrats (FDP).
If the result, due next Friday, finds a majority of the rank and file opposed to Berlin’s bailout policy to date, senior party officials have conceded it could force them to recommend voting against future bailouts.
“In that case, I cannot see how the coalition can continue,” said FDP federal health minister Daniel Bahr yesterday.
With the all-night session visible on all faces, German officials reacted allergically to suggestions that an inter-governmental deal marked a strategic setback.
Some summit watchers suggested that, with an inter-governmental deal on the table, France could move up from trailing Berlin to its old power, sharing the steering wheel.
“If Paris thinks it has one over on us,” one German official snapped, “they haven’t noticed we’ve got central Europe behind us.”