One of the biggest macro threats to the global economy in 2011 continues to be instability in the eurozone. And while the bailout fund, set to provide a financial backstop for fringe eurozone members, in in place, Germany and France cannot agree on what to do next.Essentially the dueling visions work like this:
- Germany wants a fund similar to the one that already exists (the EFSF), according to Der Spiegel, except it would be buying European sovereign debt, instead of the ECB. Germany, and every other state, would also have veto power on any loan agreements.
- France wants the economies of Europe to be brought together under the roof of the European Council, the group made up of the EU’s heads of government. French Finance Minister Christine Lagarde calls this plan the ’16 plus’ proposal, as it includes only the leaders of the eurozone member states (Estonia yet to get the invite).
More on Largarde’s plans, from Der Spiegel:
According to her plans, EU states would have to harmonize not only their national budgets, but also their economic policies. For example, Lagarde proposes that if a country wants to improve its balance of trade by exporting more, it must first “gain the consent of the others” within the group of EU governments.
Germany does not like the sound of this at all, as it is an affront to their free-market, responsiblity approach to Europe’s independent governments.
But markets don’t have faith in Germany’s approach, and for obvious reason. Why would investors trust a bailout fund that’s actions could be vetoed by any member, including the thrifty Germans?
The all encompassing nature of the French proposal is more like what Societe General envision as a solution to the crisis situation that would push European markets higher in 2011.
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