Wednesday, November 02, 2011

EU’s desire to have China become the major national investor in its bailout fund has been met by insistence that China get something major in return

The challenge [for Europeans] is to identify what kind of reality confronts an E.U. that now insists it has come up with elements of a solution to its loss of credibility and relevance
writes John Vinocur in the International Herald Tribune.

Have the countries of the euro common currency zone created a new culture of truthfulness, or a plan for growth to compensate for their covenant of economic and financial constraint, or hard guidelines to keep potentially massive creditors, like China, from encroaching on Europe’s independence and its place as a pillar of the West?

A Matterhorn of doubt follows here in three segments:

Bad History Quite simply, the euro zone always had clear rules, supervision and penalties. Saying now that new rules will be strictly and suddenly enforced means little, considering the precedents.

The Maastricht Treaty provided for stringent controls — but all the members of the common currency disregarded them and set a pattern of easy variance from the truth.

Jean-Pierre Jouyet, president of the French Financial Markets Authority, has described the existence of a “culture of connivance” that resulted in a decision in 2004, countenanced by the European Commission, to let a Greek government admission of fraud (made in Mr. Jouyet’s presence) pass in silence.

A year later, Germany and France both exceeded the euro zone’s debt and deficit targets while avoiding either political or cash penalties, and anything akin to embarrassment. Cooked books, disdain for the E.U. rules, contempt for the truth — for a good part of a decade, the result was, Mr. Jouyet told me two years ago, “countries felt there were no rules. The notion of rigor was gone.”

… In the end, rather than the E.U. reckoning with its own implosion of standards, it was the markets and ratings agencies, although demonized in the process by European leaders, that caught out the game that held a Greek bond was as solid as a Dutch one.

Even as the crisis gained force, European denial and deflection dominated. …

Little Growth When Angela Merkel returned from the Brussels meeting last week, she said its achievement was as “a step on the way to more stability and a stability union.” The growth part of the equation went missing.

Bottom line: minus a clear plan that makes an improbable combination of consolidation and growth believable and sustainable in the near future, the real European perspective is for trouble.

… In response to countries like the United States, and an institution like the International Monetary Fund, that call for greater domestic demand in Germany, and see German (and Chinese) trade imbalances as a major hindrance to growth around the world, Mrs. Merkel has again said fuggedaboutit.

She insisted last week that highly competitive nations must not be punished because of their greater skills.

Responsibilities Europe’s desire to have China become the major national investor in its bailout fund has been met by unmistakable Chinese insistence that China get something major in return.

Greater economic investment and trade access to Europe are troubling enough.

But suppose Beijing insisted the E.U. lifts its embargo on arms sales to China as a quid pro quo.

Nicolas Sarkozy has long been on the record as being in favor. Catherine Ashton, the E.U. foreign policy chief, said earlier in the year, “The current arms embargo is a major impediment for developing strong E.U.-China cooperation. The E.U. should discuss its practical implication and design a way forward.”

Of course, Europe could just say no. Or, very possibly, pay back a bailout with a decision challenging the Obama administration’s analysis that China is a growing military threat — not to mention American notions of the West’s solidarity.

This is new ground for a vaguely and still unconvincingly redefined E.U., its reins increasingly in the hands of a Germany whose departure from nuclear energy points to its and its neighbors’ growing energy supply dependence on Russia.

Call the E.U.’s response to China’s investment conditions a sudden, global responsibility of a kind that goes beyond the boundaries of what 21st-century Europe had always done best: blur the edges of any definitive choice more complicated than pure self-interest.