The Eurozone According to Merkel

BRUSSELS – We had almost given up waiting for them, but then they came in a quasi-clandestine form. German Chancellor Angela Merkel did not announce her ideas for eurozone reform in a formal speech or in a statement before her peers. Rather, she allowed a quickly cobbled-together and telegraphic Franco-German non-paper to leak ahead of the recent meeting of European heads of state and government.

There was no shortage of outcry in other European Union capitals (because of the paper’s undiplomatic bluntness) or in Brussels (because she did not care about EU procedures and the distribution of competences). But the ideas outlined in the paper deserve serious discussion.

The initiative is, first of all, institutional. Whereas earlier, Chancellor Merkel had ruled out the old French idea of eurozone-specific governance for fear of being in a minority among Southern European countries, she has now drawn a lesson from the crisis and is proposing that eurozone countries go ahead and tighten cooperation with any others who are able and willing to join them. This is a significant step.

On the fiscal side, Germany had started by insisting on bolstering sanctions. As is often the case in criminal law, the idea was (and is) more about reassuring public opinion than about preventing wayward behavior. In fact, the EU’s Stability and Growth Pact suffers at least as much from a flawed design as from lack of enforcement (it should never be forgotten that as late as 2007, Ireland and Spain looked like paragons of budgetary virtue). Moreover, for ten years, stewardship from Brussels has failed to bring about reform of national policies, and it is not clear that additional or more automatic sanctions would elicit a greater sense of “ownership” of the rules.