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Monday, October 24, 2011

European "union"

So, by Wednesday, EU leaders will have held nine meetings in five days, which is extraordinary. In addition, they will also have seen through a huge number of rows. So how many rows can we count to, over the last week or so? Here we rank them in order of their potential significance and level of intensity.

1) The 'you shut up' row: French President Nicolas Sarkozy finally lost it with David Cameron's consistent criticism of the eurozone leaders' handling of the crisis, reportedly telling him he "had lost a good opportunity to shut up", while also trying to cut Cameron out of important meetings deciding the bank recapitalisation plan (a move that eventually failed). You can understand Sarkozy's frustration but if he snapped at everyone who criticised the handling of the crisis we'd imagine he wouldn't have too many people to talk to.

Result: Sarkozy 0 Cameron 1

2) The 'laughing at Berlusconi' row: After teaming up and privately lambasting Italian PM Silivio Berlusconi for his lack of economic reform (or any reform at all) despite the growing market fears surrounding his country's debt sustainability, Sarkozy and German Chancellor Angela Merkel let their feelings slip publicly by laughing in response to a question on whether Berlusconi had convinced them of his ability to finally make the necessary reforms. Not the proudest moment for either the French or German leaders but sums up what seems to have been another bad weekend for Berlusconi in a terrible year. To top it off he returned to Italy and announced a plan to increase the retirement age by two years, a policy likely to put him on a collision course with his coalition partner Lega Nord. In terms of consequences then this row could be a biggy, given that it may threaten the stability of the Berlusconi government.

Result: Merkel & Sarkozy 2 Berlusconi 0

3) The 'not so happy couple' row: Despite seeming united while ganging up on Silvio, the facade of unity between Merkel and Sarkozy was quickly shattered. In something that seems more like a scene out of a bad High School Musical sequel, Merkel is reported to be hurt after Sarkozy remarked to other leaders about the Chancellor,"she says she is on a diet and then helps herself to a second helping of cheese". We'd imagine this could turn out to be one of the more costly insults in history if Merkel decides to remove any sympathy for the French government or banks from her approach to the crisis. Add to this the reports of a loud slanging match at Jean-Claude Trichet's leaving party and all does not look well behind the scenes for the EU's proverbial power couple.

Result: Sarkozy 0 Merkel 0 (Only half-time, could easily turn into a rout for Merkel)

4) Merkel v the Bundestag: Last Friday saw the recent tensions within the Bundestag come to a head, with the parliament refusing to give Merkel a mandate to negotiate on at Sunday's summit, eventually forcing the EU to agree to hold another summit on Wednesday. In terms of consequences for eurozone decision-making, this one is key. The row over how much say the Bundestag has in the eurozone crisis negotiations and policies has been simmering for some time and we expect this to be the first of many flash points. Merkel took an early lead by sidelining the Bundestag but with the recent German Constitutional Court ruling and by forcing Merkel's hand here, the Parliament has clawed it back.

Result: Bundestag 2 Merkel 3 (but plenty more to come, with Bundestag on the up)

5) Conservative Party 'rebellion': Yes, we put this fifth, despite this being the biggest internal test Cameron has faced to date - this is because, to us, it's a bit of an inflated Tory row. Scratch the surface, and the Conservatives are more united on Europe than they ever have been (arguably) - most of them want renegotiation. Still, media loves that old Tory split story and there are widespread reports of a growing 'rebellion' in the Conservative Party ahead of today's vote on the prospect of an EU referendum. Definitely, become a bigger issue than the government would have wanted and has gained some vocal support but with a three line whip the government looks likely to get its way eventually (albeit after handling the situation poorly). The actual motion is non-binding and the Government will win the vote in any case. But in terms of political outcome, it's finely poised, though we give it a draw for now.

Result: Government 2 Rebels 2

6) The 'banks won't pay' row: An old classic here, with the usual arguments between the banks led by the Institute for International Finance (IIF) and EU officials. Banks refuse to take bigger write downs angering the officials and stalling any permanent solution. As long as the write downs continue to be voluntary in nature the banks will continue to hold the power.

Result: EU officials 1 Banks 4

7) The ECB 'footnote' row: As we noted in our post on the latest troika report, the IMF and the ECB had a significant disagreement over the debt sustainability in Greece and the level of write downs needed to keep Greece stable. The IMF looks to have one out given the analysis in the report, although the ECB got a footnote in stating it doesn't agree with the scenarios. A win for the IMF but given the previous row and result it may become a moot point.

Result: IMF 2 ECB 1

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