A couple of extra pieces of Europe news for today. Firstly from Reuters:
French President Nicholas Sarkozy has embraced a German campaign for treaty change that could give European authorities intrusive powers to intervene in the national budgets of countries sharing the euro currency.
France and Germany will soon propose amendments to the European Union treaty in response to the bloc’s sovereign debt crisis, Sarkozy said on Tuesday.
“With (Chancellor Angela) Merkel, we will soon make proposals on modifying the treaties to prevent countries from diverging in the budgetary, economic and fiscal areas,” he told an Asian forum in Paris.
“We will do everything not just to defend Europe but also to consolidate it.”
Treaty change in the EU is a fraught process. France has long defended its own national fiscal and economic sovereignty and its voters rejected a proposed EU constitution in a 2005 referendum.
But diplomats said Sarkozy has little alternative to going along with Merkel because France’s top-notch AAA credit rating is under threat and the risk premium investors demand to hold French debt rather than German bonds is rising.
I am not 100% sure exactly who this deal is supposed to be good for at this point. Neither of these countries would pass the current European economic criteria under the European treaties, are they going to fine themselves ? As I explained on Monday France and Germany have taken opposite path to economic growth over the last seven years, so unless this is some sort of balanced resolution to their economic differences it could all end badly for both of them. It will also be very interesting to see how other European nations take the sudden news that Merkozy want veto rights over their fiscal sovereignty.
France, however, has far more immediate problems:
Global stocks extended losses and the euro slipped on Wednesday after a newspaper report that Belgium and France were holding fresh talks about a deal they had reached to rescue Dexia, the first government bailout of a European bank in the euro zone debt crisis.
Newspaper De Standaard said that talks were taking place, citing no sources, although it also said that Belgium’s finance minister Didier Reynders denied that the accord reached between the two states to rescue the bank would be dismantled.
They said the talks concerned the distribution of the costs between the two countries after the bailout of Dexia, which has raised pressure on other euro zone countries to strengthen their banks as the continent’s debt crisis deepens.
If these reports are correct then it would seem that Belgium’s political problems have spilled over into the rescue plan for Dexia. As I explained this morning the collapse of the Belgium parliament has seen a sudden rise in funding costs for the country. If they can’t fund themselves then they can’t fund a bank bailout, which currently stands at 90 billion euros with a Belgium holding 60%, France 37% and Luxembourg 3%.
This pushes more of the heavy lifting over to France which obviously is already under pressure itself. Is France about to lose its AAA?
One step forward, two steps back.