European Foundation Intelligence Digest, 18th

Trichet pleads for pact to be respected

The incoming president of the European Central Bank, Jean-Claude Trichet, who is due to appear before the European Parliament on 11^th September, has contested the arguments put forward by the French government justifying its plan to cut taxes and increase its budget deficit to promote growth.

With the French budget deficit likely to be 4% of GDP in 2003, the famous Stability Pact, which limits deficits to 3% of GDP, is pretty much a dead letter.

Nearly everyone has attacked France for its cavalier attitude to the rules. The Commission has expressed public regret at it, and a deficit procedure is already pending against that country. The French Prime Minister, Jean-Pierre Raffarin, is trying bravely to square the circle between his commitment to “Europe” and his commitment to his own electorate. He is pleading that more state spending is necessary to promote economic growth and jobs. Romano Prodi has promised to be flexible but he has also demanded “structural reforms” in return. Prodi has also expressed his scepticism that tax cuts will help boost the economy. But all the old arguments have been trotted out again, such as when Raffarin said, “In the Growth and Stability Pact there is the word ‘growth’” – even though the Pact is actually called “Stability and Growth” not the other way around. Another French minister said, “It is important that no one counts on us to please Brussels and push unemployment above 10%.” The commission, for its part, is talking both about “flexibility” and about its obligation to apply the rules. [Christophe Jakubyszyn & Philippe Ricard,Le Monde, 29^th August 2003]

As if this were not enough, the knives are out for Germany as well. According to figures provided by the German finance ministry, Germany is also likely to have a deficit of 3.8% of GDP in 2003. The Bavarian Finance Ministry says he expects the budget deficit to be as high as 4.3%. The high level of borrowing is being blamed, among other things, on the high level of unemployment, which has been breaking records in Germany. The Government claims, however, that the deficit will go back under 3% in 2004. Berlin is still hoping to avoid the ignominy of being the first country to be fined, under the terms of the Stability Pact, for failing to balance its books. The Commission seems to lend some credence to the idea that all will turn out all right in 2004, although this is based on the German economy growing by 2%. The monetary commissar, Pedro Solbes, said that Germany could not expect any special treatment, although he did – astonishingly – then seem to suggest that Germany did merit special treatment because of the particular costs associated with reunification (over ten years ago!). “We have to take this into consideration,” Solbes said. [Handelsblatt, 29^th August 2003]

With the eurozone’s two leading economies out of control, the European Commission is now predicting that the budget deficit of the eurozone as a whole will be 3% or over this year, at which news the value of the euro fell sharply on foreign exchanges. This figure contrasts with the 2.5% which the Commission predicted for the eurozone last spring. [Le Figaro, Agence France Presse, 2^nd September 2003]

Small wonder, therefore, if leading European figures have started to criticise France and Germany openly. The Swedish Prime Minister, Goran Persson, has attacked the two countries for their budget policies which, he said, are damaging the economy of the whole of the EU. [Der Spiegel, 2^nd September 2003]. He said they were guilty of having failed to bring their finances under control before the euro was introduced. He claimed that they should have reformed their economies in the 1990s, as Britain, Sweden and Finland did. [Der Spiegel, 2^nd September 2003]

Now Trichet has added his voice to the chorus of criticism. He has responded to statements by French ministers by saying that, “It would be a mistake to believe that, in difficult economic times, there is necessarily an advantage, from the point of view of growth, of making bigger deficits.” He claimed that public perception of a government which is spending too much would have a negative impact on consumption and investment, and that this would cancel out any positive “Keynesian” effects on growth. “In the final analysis, respect for the Pact will strengthen confidence and, therefore, growth.” He said it would be “dangerous for the credibility of the whole of the economic and monetary union” to modify the Pact. He claimed that 3% deficit gave national governments a sufficiently large room for manoeuvre. He added that the ECB was committed to growth and job creation, and that this was reflected in the extremely low interest rates at the moment. Trichet also warned the new member states against adopting the euro too quickly. “When you enter, it is once and for all. There is no way out,” he said. “It would be a mistake, for the country concerned and for the whole system, to hurry into the euro without having made rigorous preparation.” He said that ECB could not be expected to modify its policies for the benefits of the new member states, but rather for them to adapt to everyone else. [Arnaud Leparmentier, Le Monde, 4^th September 2003]

Paris and Berlin press for growth

Faced with their anaemic economies, France and Germany are trying to find new ways of promoting growth. They want to propose common plans for a European investment programme to their EU partners. The German Government has already drawn up a list of possible investment projects and sent it to Paris for discussion. They include the laying of broad band telecommunications cables; research projects for environmentally friendly railway tracks for the transportation of goods; and offshore wind farms. There are also classic public works projects like the extension of the airport Berlin-Brandenburg and the construction of a magnetic suspension railway in Munich. The purpose is to have a joint list by 18^th September, when there will be a Franco-German meeting in Potsdam. The idea is also to counter the proposal put forward by the Italian Presidency which envisages spending €50 billion on infrastructure projects. The proposal, drawn up by the Italian finance minister, Giulio Tremonti, has initially met with near universal scepticism; now, it seems to be unstoppable. So the French and the Germans are at least trying to ensure that the money is spent on useful projects. Oddly enough, the “useful” projects put forward by the Germans are for construction projects in Germany, while the “useless” ones they want to prevent include things like building a bridge across the straits of Messina between Sicily and the Italian mainland… [Andreas Rinke & Christoph Nesshöver, Handelsblatt, 4^th September 2003]

Opponents of Euro-constitution meet in Prague

A group of politicians opposed to the draft European constitution drawn up by Valéry Giscard d’Estaing has met in Prague to agree a common position before the Intergovernmental Conference starts next month. Fifteen representatives from small and new member states (or future member states) met in the Czech capital at the invitation of the Czech Government. The participants were: the Czech Republic, Poland, Hungary, Slovakia, Slovenia, Sweden, Finland, Denmark, Austria, Ireland, Greece, Estonia, Lithuania, Latvia and Portugal. The Benelux countries, which have also expressed their reservations about the draft constitution, were also invited but said that they considered it “inopportune” to join a specific group at this point. The meeting lasted several hours and its work was pronounced

“positive” by the Czech government. The fifteen did not agree on a single common position but they did manage to establish which points they do agree on. The biggest areas of agreement concern the strengthening of the power of big countries in the new constitution, and the project of creating a European army, which the fifteen generally consider an unnecessary duplication of the work of Nato. Paris and Berlin have already expressed their concern that the draft constitution will be re-opened in the IGC, and they have done their best to prevent this – faithful as ever to their preference for the work of big unelected committees, like the European Convention, over the opinions of elected governments. When himself in Prague last week, Joschka Fischer, the German foreign minister, warned the smaller countries against questioning the draft constitution. “Whoever reopens the consensus,” he said, meaning whoever questions it, “must be able to re-create it or else we will be in a terrible situation.” The French prime minister has similarly said that he wants the IGC to “go quickly” – in other words, for it not to contain any substantial discussions. But there is considerable opposition to the draft. Poland, for instance, which is an important medium-sized country, is determined to preserve the powers it gained at Nice, when the new voting arrangements in the Council of Ministers and the European Parliament were painstakingly agreed. That balance of power is changed by Giscard’s draft, which proposes to give more power to big countries from 2009 onwards. Poland has an ally in Spain on this issue. Finland is strongly opposed to the idea of having a European president, and it also wants each country to keep its own commissioner, issues on which Austria is a strong ally. [Alexandrine Bouilhet, Le Figaro, 2^nd September 2003]

Commission wants one country one vote

The European Commission is determined to bring its influence to bear on the Intergovernmental Conference which starts work on 4^th October in Rome, and which is to put the finishing touches to the European constitution. Romano Prodi and Michel Barnier, who represented the Commission on the European Convention, have explained that there are still some important outstanding issues, even though they have been warned against unravelling the work of the Convention by trying to change significant things in the IGC. The main point about which they are concerned is that each country should have a commissar, something which is not in the draft constitution produced by the convention. In its current form, the new constitution provides for only fifteen commissars with full voting rights. This would leave seven countries with no voting rights in the Commission. Romano Prodi has strongly criticised the idea that some commissars could have voting rights and others not. “Such a system cannot work,” he has said. For him, all countries should be equal within the Commission. Mr. Prodi is also hostile to the concept of a president of the European Council being elected: this, he fears, will erode the traditional pre-eminence of the Commission over EU decision- and law-making. [Philippe Ricard, Le Monde, 29^th August 2003]

‘No’ still ahead in Sweden

According to the latest polls, the percentage of Swedes who intend to vote Yes to the euro on 14^th September is between 32% and 37%, as against between 48% and 50% who intend to vote No. The Swedish daily, Dagens Nyheter, has calculated that the Yes camp would have to convert 25,000 Swedes a day for it now to win. The Yes camp has been severely damaged by infighting within the government, which contains opponents of the euro. For instance, the Finance Minister has attacked the Trade Minister for using “unfactual” arguments in favour of the single currency. The Environment Minister has similarly been accused of spreading “false information”. Even the prime minister himself felt moved to attack his own culture minister: he said that she did not know what she was talking about when she said that the EU was evolving into a superstate to which it was a risk to attach oneself. A split within the Social Democratic Party is now being openly talked about. [Catarina Persson, Die Welt, 29^th August 2003]

Aznar names his successor

The Spanish Prime Minister, José-Maria Aznar, is trying to secure his own succession, and the continuity of his policies, by appointing Mariano Rajoy, the deputy prime minister and spokesman for the government, to lead the list of the Popular Party (Partido Popular) at next March’s elections. The two main policy areas in which Aznar wants to ensure continuity are a strongly Atlanticist foreign policy and a relative firm attitude vis-à-vis regionalisms in Spain. In preparation for taking over the reins of power, Mr Rajoy is set to leave the government and to be elected as Secretary General of Partido Popular, a post which Mr. Aznar currently holds but which he intends to relinquish in 2005. [El Mundo, 1^st September 2003]

‘No doubt’ about euro army HQ next year

The Belgian Prime Minister, Guy Verhofstadt, has said that “there is no doubt” that a military headquarters for the European Union will be in place by 2004. He said that the EU’s new military HQ would definitely be set up at Tervuren, a suburb of Brussels, despite the British proposal to station the EU’s HQ within NATO headquarters in Mons. [Agence France Presse, 2^nd September 2003]

His proposal is designed precisely to counter the British proposal. According to one Nato officer, “Our present working arrangements are in fact what the British are proposing.” There are, indeed, ten officers from an EU staff group working at Mons, and they take part in the weekly planning meetings of the Atlantic alliance anyway, within the framework of the military operation known as “Concordia” which is currently under way in Macedonia. Tony Blair’s “Food for Thought” paper, which was presented to all fifteen member states as the basis for discussion, is therefore in reality, “nothing but the formalisation of this ad hoc arrangement,” according to a Nato source. EU sources see the Blair paper as “a test balloon” in which the British government is trying to reconcile its European and Atlantic commitments. It is also a counter-reaction - albeit a slightly delayed one – to the meeting held in Tervuren on 29^th April between four EU states (France, Germany, Belgium and Luxembourg) at which the intention was declared to create a European “defence” (i.e. military) union. It is now expected that the Blair paper will form the basis for the discussions between the 25 defence ministers from present and future EU states who are meeting on the invitation of the Italian EU presidency to discuss security policy. [Katja Riddersbusch, Die Welt, 27^th August 2003]

Fischer fluffs it

The smart money is apparently no longer on the chances of Joschka Fischer becoming the first EU foreign minister. Instead, two other people are being talked about as more likely to get the job: George Papandreou, the 51 year-old American-born Greek foreign minister who is a graduate of the LSE and Harvard; and Javier Solana, the man who currently occupies the post of High Representative for Common Foreign and Security Policy. His term ends in 2004 but some are suggesting that it be extended until 2006, when the new constitution is supposed to come into force, at which point he could switch to the new job. There is also speculation about how the Commission will be constituted: normally, a new Commission would be elected next year and serve until 2009. But EU sources say that it is “quite possible” that the EU governments would appoint a new Commission in 2004 for a period of only 2 years, so that a new Commission could be appointed in 2006. The point is that the new EU foreign minister is, according to the draft constitution, also supposed to be the commissar for foreign relations, i.e. the jobs currently done by Javier Solana and Chris Patten are to be fused into one. [Katja Riddersbusch, Die Welt, 30^th August 2003]

PKK ends ceasefire

In an ominous movement, the imprisoned leader of the terrorist Kurdish People’s Party (PKK, now called Kadek), Abdullah Öçalan, has declared that the four-year ceasefire with Turkey is over. In a message broadcast by Kurdish media in Turkey on 1^st September, Öçalan said that those PKK leaders who were still at large should now decide for themselves what measures to take. He specifically warned Turkey that a new war might break out. There are still some 5,000 PKK rebels in Northern Iraq, and they have declared inadequate an amnesty recently granted by the Turkish government. [Der Spiegel, 1^st September 2003] Indeed, it is their principal claim now, and that of Öçalan, that Ankara has “forced” them to take up the armed struggle again. The Turkish government, which simply considers the PKK to be a terrorist organisation, has never formally taken any notice of the “cease-fire” – there is no “peace process”, as in Northern Ireland – but recent years have seen a sharp decline in the number of attacks. More than 36,000 people have died in the fighting between the PKK and the Turks since the guerrilla operation started in 1984. [Le Monde, 2^nd September 2003]

Der Kampf um Europa

A pro-European monthly has published an interview with Winrich Behr in which Behr says, “I see no problem in transferring foreign and security policy to the federal European level.” The subtitle proudly announces the fact that Behr served, during the war, in the staff of the commander of the 6^th German army under Marshal Paulus, and then under Marshal Rommel, before joining up with Jean Monnet in the fight for peace. Behr, who holds the Knights Cross of the Afrika Corps, said, “There is not much difference between the president of the High Authority [the forerunner of the European Commission] and a Heeresgruppe [army group]. In both cases, there is a chief and his collaborators who must give him solutions in a short time.” [La Quinazine européenne, No. 43, 21^st July – 31^st August 2003]

Eurostat affair threatens Prodi commission

Trichet pleads for pact to be respected

Paris and Berlin press for growth

Fischer fluffs it

PKK ends ceasefire