Will EMU’s troubles delay the Union’s enlargement?

A new European Union treaty paving the way for enlargement is meant to be signed next week in Amsterdam. But a Franco-German row over the rules for Europe’s planned single currency may mess up the meeting
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THE feeling of déjà vu can be oppressive. In Dublin last December, a European summit was meant to mark a decisive step in the inter-governmental conference (IGC) that began in spring a year ago and was meant to revise the Maastricht treaty. But the Dublin meeting was dominated by a squabble between France and Germany over a “stability pact” to restrict borrowing by countries that join the single currency, the euro. The row eventually blew over. To reassure everybody that the euro really was likely to be launched on January 1st 1999, the first euro banknote designs were, with much ado, unveiled.

The Amsterdam summit on June 16th and 17th is meant, even more momentously, actually to adopt a new treaty. Yet this summit too may be dominated by the stability pact, which the new Socialist government in France has refused to endorse. A deal may well yet be struck. This time, the first shiny designs for euro coins will be revealed. None of this will impress the markets, who fear—or perhaps even hope—that the single-currency plan is going awry.

France’s decision to put the pact into contention is undeniably a setback for the euro. Worse, it comes on top of campaign pledges by Lionel Jospin, the new French prime minister, to attach new austerity-forgoing conditions to the single currency (see
article). And it coincides with Germany’s well-aired troubles, notably its effort to meet the criterion of a maximum budget deficit of 3% of GDP by revaluing its gold reserves, a ploy humiliatingly dropped after fierce opposition from the German Bundesbank.

Eurosceptics crow that all this will postpone or even kill off the single currency. Do not bet on it. At the meeting of EU finance ministers where France dropped its bombshell, Dominique Strauss-Kahn, the new hand on France’s purse-strings, stressed that his government was determined to join on time, and was not seeking to reopen the stability pact, which the Germans would strongly resist. He merely said that, since the government had not presented its programme to the National Assembly, it needed more time to “study” matters. In the margins, he made clear that France wants some extra words attached to the pact to stress the need for growth and jobs. It also wants fellow EU countries to acknowledge the case for some kind of “economic government”, albeit a glorified role for the finance ministers’ regular meetings, as a counterweight to the independent European Central Bank.

Déjà vu again. The same demands were made by Jacques Chirac, France’s Gaullist president, in Dublin. Indeed, the pact was renamed a “stability and growth pact” at his insistence. And EU officials are now drafting a resolution to re-emphasise the articles of the Maastricht treaty providing for “co-ordination of economic policies” and to strengthen the employment chapter in the draft treaty. True, none of this will alter the legal force of the stability pact and its proposed fines on over-borrowers. At previous French insistence, such sanctions will not be automatic but subject to the approval of a majority of governments.

So a deal over the stability pact could be done. And it is the markets, paradoxically, that are pressing for it. For a few hours on June 9th they thought the single currency might be shelved; the D-mark shot up and the franc tumbled. It was, for the French and Germans, a disagreeable foretaste of the fiercer reactions a real delay might produce. And it confirmed their view that it is too late to engineer an orderly delay. Any postponement would probably slide into chaos and cancellation.

Trick or treaty?

The Amsterdam summit may, however, come too soon for Mr Jospin—with his cohabitee, Mr Chirac, at his side—to accept a face-saving stability-pact compromise. Though nothing logically links the two, agreeing on a new treaty at Amsterdam will be all the harder, not least because there are still so many unsettled proposals in it. And it is bad luck that, thanks to the voters, three governments, in Britain, France and Ireland, are brand new.

True, the Union’s current Dutch presidency has cobbled together a text of the new treaty that most have accepted. There will be more majority voting, though how much more is still undecided. The European Parliament will get a bit more power. The treaty will contain an employment chapter and some harmless waffle about human (and even animal) rights. And the Union’s two extra “pillars” (alongside the main single-market body of EU rules), on foreign and security policy and on justice and home affairs, will be strengthened. Yet there are still big issues to settle.

The most complex concern the third pillar. Under the label of creating an area of freedom, security and justice, the draft text envisages a phased transfer of matters such as asylum and immigration to the first, supranational EU pillar. Denmark and Britain are opposed because they do not want Europe’s commission, parliament or court to have any say over such sensitive issues. Nor will they accept any majority voting on them. Britain also insists on a legally binding opt-out from the treaty’s plan to incorporate the Schengen frontier-free zone, which most European countries are merrily joining, into the EU.

Pillar talk

Changes to the second pillar are, with one exception, less awkward. The Council of Ministers’ secretariat will get a bigger foreign-policy role, making it easier for a prominent individual to act as Europe’s single voice. And a limited form of majority voting, with vetoes allowed when special national interests are at stake, may be agreed on for operational aspects of EU foreign policy. The exception is a plan to merge the Western European Union, Europe’s defence club, with the EU: Britain and the four neutrals—Sweden, Finland, Austria and Ireland—are fiercely against.

Most other tricky areas are institutional. The European Commission will probably be limited to 20 members, so that in an enlarged Union bigger countries would lose their second commissioner. Some small ones might one day lose their commissioner altogether. Reweighting of votes in the Council of Ministers will be harder, because small countries are loth to lose their clout. And though it is broadly agreed that a “flexibility” device should let some members adopt common policies even if others do not, Britain and several other countries insist that, to safeguard the laggards, this should be subject to unanimous approval.

Pretty mundane as most of this sounds, it may be impossible to settle it all next week, in which case the incoming Luxembourg presidency may convene a special summit in July. And even when the new treaty is agreed on, it will be much less ambitious than integrationists had once hoped. It will also barely do enough to prepare for the Union’s enlargement, talks on which are meant to start in six months’ time—provided arguments over EMU do not cause such bad blood that compromise cannot be reached on anything else.

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