The Opaque Brussels Deal Shows Germany’s Upper Hand
By Farooque Chowdhury
30 October, 2011
German capital’s bold face and private bankers’ negotiating power are evident in the Brussels deal the euro-leaders have made on October 27. The summit made Italy, the “brave” warrior in Libya, a caricature while the UK, the Empire’s faithful friend, stood on the sideline. The deal now keeps hope on China. There are yet knots to untie, and the task has been kept for future that signals significant changes on the world stage.
The deal, essentially with private bankers, came out after long wrangling as the power game was with the private creditors. The summit had to negotiate with interests of private banks, represented by the Institute of International Finance (IIF). The EU communiqué sets out a 10-point program for an inner EU institution. Policing of euro is preferred by the euro-leaders, and a police baton will be carried by the EU economic and monetary affairs commissioner. Capital needs disciplining. It cannot always free wheel.
Despite vague in detail the deal is not totally empty. It made the French president feel a sense of relief. “If there was no accord […],” Nicolas Sarkozy said, “it’s not just Europe that would face catastrophe, but the whole world.” Now the leaders are keeping hope on investment by China, Russia and Japan.
But the leaders failed to succeed in making a comprehensive package they were trying for. Two of the key elements of the deal are the recapitalization of European banks, and leveraging the EFSF, increasing its potential available capital to about $1.4 trillion. They hope that it will be capable of financing big countries like Spain and Italy.
Cutting down sovereignty of Greece and Italy is one of the achievements of the summit. Bosses will now check all tax and spending decisions, and ensure implementation of austerity plans in Greece. Athens will be virtually controlled by Brussels bureaucrats, as Rome by Berlin.
Private creditors hold about two-third of Greek debt, which is 360bn euro in total. The leaders have banked on voluntary commitment of private banks. They hope that the private creditors will write off Greece’s 50% of debt, and this act of mercy will reduce the mauled country’s debt to 120% of its annual income, down from the present 180%.
A ray of hope is there for the tormented country: additional financial help from the IMF and the EU. This benevolence will enable Greece to pay its bills until 2014.
The Greek tragedy heroes are now going to land on heavily indebted and slowly growing Italian capital’s domain with its diminishing sovereignty. Italy with $2.6 trillion in sovereign debt outstanding, the fourth-largest debt in the world after the US, Japan and Germany, will now be dictated. Rome will be assigned to carry out this job and that task within a time frame. This is the democratic face of global capital that knows no frontier. It’s capital’s bold, but tragic journey.
Italy’s Libya expedition friends, France and Germany, pressured Rome. Italy publicly turned a caricature. Later, Berlusconi assured in an interview that Merkel had apologized to him, but immediately after, in a statement the German government denied the Italian leader’s assertion that made the Italian comedy much more laughable.
Italy has agreed to reduce its debt level over the next three years from a current level of 120% to 113% of GDP. Rome will also increase retirement age from 65 to 67. In August, Berlusconi promised ambitious reforms to get the ECB to buy Italian debt. But he failed to accomplish any of those.
Berlusconi, who, by his count, has survived 577 police interrogations and 2,500 court appearances related to political and saucy scandals, again had to make pledge to the EU, actually to Angela Merkel and Sarkozy. Probably it was not befitting for a powerful player in the NATO’s Libya Conquer play. After all, the Italian prime minister was close ally of the French power in the expedition, and as a genuine NATO warrior he boldly disregarded calls for help from his former friend Gaddafi. The Italian warrior, however, had no other way but to agree to the pressure mounted on him by the two European powers as French banks have the biggest exposure to Italian sovereign debt, more than $500 billion, and Italy is too big to bail out.
After “sweet” encounter with French and German friends, the billionaire prime minister of Italy will have to face Italian labor now. That will not be an easy game not only for Berlusconi, but also for the entire Italian fuel thirsty elite. Italy’s labor unions are angry with the Italian leader’s pledge. The Roman elites have now pledged to their European friends, philosophers and guides – the German and the French – to allow capital to put burden on shoulder of labor, make cutting down of labor easier for capital. Promise has been made to legalize the drive against labor by next May. The sovereign savior of capital has also pledged to sale assets, public assets. The Italian labor will now find no other way but to respond boldly and widely. A number of lawmakers from Berlusconi’s coalition have signed a letter asking him to stand down.
With one of the worst interest rates among eurozone members and sitting at the top of a list of defaulters Italy’s, the world’s eighth-largest economy, debt rating has recently been down graded by Standard & Poor’s and Moody’s. They have warned of more in future.
Europe now seeks help from China as the Brussels Deal expressed its desire. The continent hopes that the emerging giant will contribute to Europe’s Special Purpose Investment Vehicle, one of the two proposed ways of increasing the firepower of the EFSF. But there are unresolved problems.
There is the already-known opposite pulls. Germany will not allow the ECB to provide unlimited funds in case of a domino effect from the Greek write down impacting Italy or Spain. France likes the ECB to provide the ultimate backstop so that investors are assured that no eurozone country would bust. The opposite views have respective deep interests.
The Brussels deal is the German chancellor’s success story. Merkel dreams of revision of the union treaties and imposition of German political discipline on the Greek public sector. Then, shall that be on a wider domain? She is now competing with Sarkozy for dominant position. The Deal made it clear that France has been forced to give up a few of its position it clutched for the last few months. Germany seems got upper hand. It is competition of fragmented capital united in its global expedition.
There are significant questions related to China’s investment in Europe, and Germany’s bold face. Already, the debt crisis has taken character of political problem with roots deep in areas of capital and society.
Dhaka based free lancer Farooque Chowdhury contributes on socioeconomic issues.
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