Thursday, June 09, 2005

D-Day postponed

So, the French (and the Dutch) have voted. Not good for the D-Day in the war against terror. Just as Mr Blair's local difficulties over Iraq made UK entry into the Euro recede further and further away, so Joschka Fischer's vision (Turkey's joining the EU) seems a distant dream. And if the 'Polish plumber' is such a bogeyman for the French, how much of a welcome is going to be offered to the Ukrainians, Orange Revolution and all?

So, where to from here? Obviously, there were a number of tactical points that proved to be obstacles. The proposed constitution was too long, due to combining substantive changes - on qualified majority voting - with a restatement of principles already incorporated in existing treaties - for example, the references to free and not distorted (faussé) markets, that the French left made such a fuss about. But any attempt to push the changes through regardless would be difficult, since the rejecting votes are above all a signal of the alienation of people from their elites.

Things may look better in 2 or 3 years time, not particularly because Chirac and Schröder could be gone. This will only happen if the general morosity of the French (and others) is overcome, by tackling the economic problems that lie behind it. Maybe I was too pessimistic before about what could be done on monetary policy. Anatole Kaletsky in his piece of 26 May, linked to by both Greg and Harry, argues
European policymakers could kick-start growth and break the spiral of economic and political pessimism by doing exactly what America did in similar circumstances in 2001. They could reduce interest rates drastically and devalue their currency. As in Japan, interest rates could be reduced all the way to zero and the euro could be pushed down through intervention in currency markets. Such an aggressive policy of monetary stimulation could be guaranteed to revive economic growth, whether or not voters could be persuaded to endorse the labour market and pension reforms that Europe certainly needs in the long run but which can actually aggravate economic stagnation in the short term, as Herr Schröder has learnt.
If Europe’s leaders want to revive any hope of EU integration, they have one obvious recourse. The first order of business in any revision of the EU constitution must be to change the objectives of the ECB and bring central bankers under the explicit political control that is taken for granted in Britain, America and Japan. Imposing some political discipline on the ECB would not guarantee popular support for EU integration, but it would at least acknowledge to voters that Europe has suffered from a decade of monetary incompetence that now borders on sabotage.
If this happened, the Euro might start to look more attractive to the UK, as well. On the other hand, the ECB is held back by the fact that inflation is high and rising in Italy, as pointed out in a review in The Scotsman (4 June).

Anyway, paradoxically the very patrician de Villepin has replaced the more France d'en bas M Raffarin. But his ideas on economic reform seem to be getting some positive reaction.


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