Is Sarkozy winning?

By: Wolfgang Münchau

It was a remarkable performance by Nicolas Sarkozy when he visited the Eurogroup in Brussels. He managed to avoid a confrontation, and to defuse some of the criticisms launched against him by Peer Steinbruck, the German finance minister.

 

Jean-Claude Juncker now appears to side with Sarkozy. Until not too long ago, it looked as though Sarkozy was isolated in Europe. Now it is very clear that the Germans are isolated in their rejection of any form of economic policy co-ordination beyond the stability and growth pact. This show us how fast politics can change.

 

I have argued in my recent Financial Times Deutschland column that Germany needs to formulate a response to Sarkozy. Or better, that Germany makes its own proposal to improve economic policy co-ordination in the euro area. If not, the only proposal on the table will be Sarkozy’s anti-stability, anti-competition, pro-currency-intervention proposals.

 

Germany should instead propose a two-point plan. The first point is to pool the eurozone’s resources in international organisations such as the IMF and the World Bank. The eurozone has 23% of the votes in the IMF, 6% more than the US. It could accept parity, and distribute its surplus shares to developing nations, which would helping bring the IMF on a more even footing. There is also a case for the eurozone to pool its seats in the G7 and the G10. 

 

Furthermore, the euro area does not need an exchange-rate policy, but it needs something like a High Representative with the authority to talk and negotiate with third countries. That person may be Jean-Claude Juncker or Joaquin Almunia, but it should not be a troika. It needs to be a politician endowed with power.

 

The second proposal is to coordinate structural reforms. This would make the reforms more effective, and coordination would also help improve public support for reforms.

 

Without such a response there is a serious risk that Sarkozy will win this debate.

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