According to Wolfgang Münchau (FT December 4) Angela Merkel and Nicolas Sarkozy are as far apart as they ever were.
“Contrary to what is being reported, Ms. Merkel is not proposing a fiscal union. She is proposing and austerity club, a stability pact on steroids. The goal is to enforce life-long austerity, with balanced budget rules enshrined in every national constitution. She also proposes automatic sanctions with a judicially administered regime of compliance.”
“Mr. Sarkozy … while rejecting Ms Merkel obsession with austerity, … is not interested in a genuine fiscal union either. He is open to a eurozone bond and to the European Central Bank having the role of lender-of-last resort. I would surmise that this is because France would stand to benefit from both.”
While European leaders “understand the technical and legal issues well … I doubt they have ever understood the economic and financial dynamics behind the crisis. Their narrative, which reduces the crisis to a failure of fiscal discipline, is probably the reason why all their crisis resolution efforts have failed so far.”
The point is well taken. But I suspect that the French and German governments stick to the “failure of fiscal discipline” theory because (a) the fundamental interests of France and Germany are conflicting, and (b) because, contrary to what Münchau believes, a correct diagnosis of the cause of the current euro crisis would point to the fundamental responsibility of the euro system itself: a non OCA (non Optimal currency area) which is also a non “ Optimal State area”, thus precluding any serious move towards a federal state, American way.
In my view, Ms. Merkel and Mr. Sarkozy are jockeying for position to avoid bearing the responsibility of a euro break up and try to gain some more time to persuade their public opinions that they did try everything to “save” the euro, so that when it finally breaks up none of them will have to take the blame.