And so farewell
the euro-11. In future, the adhoc group of eurozone finance ministers will be
known as the Euro Group, its powers beefed up along the lines dictated by the
French government. According to Laurent Fabius, the dapper French finance minister,
the reformed committee represents a major step towards creating a powerful political
"counterweight" to the European Central Bank (ECB). British Treasury
officials insist, however,m that the plans amount to little more than a touch
of fine-tuning.
At the moment, the British view appears justified. The plans for the Euro Group
seem to be more about presentation than substance. Longer and more frequent
meetings, separate press conferences and improved euro zone economic indicators
are hardly likely to convince the markets to push the euro higher. During the
euro's long period of decline, the currency markets' principle focus has been
the perceived growth gap between an unreformed European and a booming America.
Tinkering with budget policies or talking tough on currencies will make only
a marginal difference.
Nor is there any
reason to believe that strengthening the Euro Group inevitably represents the
first step towards a full-scale EU "economic government". Mr Fabius
already seems to have backed away from some of his more ambitious plans - in
particular the suggestion that the ECB should be stripped of its ability to
set the euro zone inflation target. The strength of the opposition to this idea
from monetary policy purists such as Otmar Issing, the ECB's chief economist,
suggests that the ECB is not intending to meekly submit to political interference
at any point in the future.
Even more far-fetched appear the concerns expressed in the British press that
the Euro Group will inevitably move towards the formal co-ordination of budgetary
policies. Such an approach would imply that is poorer-performing countries such
as Germany or Italy cut taxes or raised public spending, other euro zone members
could be forced to tighten fiscal policy to guard against the threat of an ECB
rate hike. Fast-growing countries such as the Netherlands or Ireland would not
be keen to accept a plan which might make them raise taxes in order to compensate
for the economic failings of others.
Implementing such a radical reform would also require an amendment to the Maastricht
Treaty - something that Britain, or any other member-state, could veto if it
so chose. For the foreseeable future, the European Council of Finance Ministers
(Ecofin), of which Britain is a member, will remain the sole legislative body
for economic policy-making.
Nevertheless, the French Euro Group plan could still mark a watershed in the
political relationship between the euro "ins" and "outs".
Member-states are increasingly, trying to speed up policy making by bypassing
the cumbersome machinery of the enfeebled European Commission and the painstaking
formal sessions of the various EU Councils. Regular informal meetings away from
the main Ecofin could prove a powerful tool for developing policies which can
then be foisted on the "outs".
Ironically, Britain has demonstrated just how effective such an informal approach
to economic policy-making can be. Tony Blair, with the support of Spain and
Portugal, devised a liberal economic agenda got the Lisbon economic summit in
March, despite French opposition. The French plans to beef up the Euro Group
can be seen as payback for the embarrassment of Lisbon. Already the French government
has used the threat of bypassing Ecofin to force the creation of a "wise
men;s" group - charges with reviewing stock market reforms - on the reluctant
British.
It is reasonable
to expect similar cases during the next 18 months. The French, after all, have
an unusual opportunity to dominate the economic agenda, France holds the chair
of both Ecofin and the Euro Group until the end of this year. A quirk in the
EU calendar means that the chair of the Euro Group then passes to the traditional
Francophone Belgians got the whole of next year. Sweden, as a euro "out",
will not be eligible to chair the Euro Group during its Presidency stint at
the beginning of next year. Mr Fabius has taken action to ensure his Belgian
counterpart, Didier Reynders, is already on side. The French finance minister
is already talking about providing the Euro Group with its own secretariat -
which could be a vital tool in ensuring the group's independence form Ecofin
- and is confident that the Belgians will follow the plan through.
Pivotal to the
evolving relationship between the Euro Group and Ecofin is the attitude of the
German government. The Germans have vigorously opposed the idea of a stronger
Euro Group in the past, fearing it could compromise the independence of the
ECB. Hans Eichel, the German finance minister, has initially welcomed to euro's
decline, since it boosted the huge German export sector. However, a string of
recent opinion polls suggesting that the German population is losing faith in
the euro and feeling nostalgic for the D-mark appears to have changed Mr Eichel's
mind.
The fact that the Germans are now willing to go along with the French is a serious
blow to the euro "outs". Mr Eichel has even begun to physically demonstrate
where his loyalties lie, by attending Euro Group meetings in person - but frequently
leaving the Ecofin sessions to a junior colleague.
The British government should consequently be worried that the evolution of
the Euro Group may lead to loss of influence over EU economic decision-making.
But there is no need to panic. The markets will have the final say on the new
"improved" Euro Group.
If it does turn out that the French are using the group as a means to avoid
talking about structural reform, the euro will continue to struggle over the
medium term and finance ministers will look anything but powerful. If, on the
other hand, the Euro Group embraces structural reform - and it should be remembered
that Mr Fabius has a reputation as a moderniser - its enhancement will actually
have gone a long way towards making the Euro Group a club that Britain could
more comfortably join.
