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Friday, Jan. 20, 2012

Painful truth of Merkel's EU

Special to The Japan Times

HONG KONG — France's loss of its coveted triple-A credit rating at the hands of Standard & Poor's gives added point to a wonderful video skit by Germany's state broadcaster ARD — which shows French President Nicolas Sarkozy playing a butler to German Chancellor Angela Merkel as mistress of a grand old house. Who says the Germans have no sense of humor?

The skit is actually an adaptation of Germany's — and the world's — most watched television program but with the heads of the two leaders placed on the star characters: Sarkozy as James, the drunken butler, and Merkel as Miss Sophie, the ancient mistress. In the jest of the moment, the skit gets close to the difficult economic and political truth of Europe in 2012.

The conclusion follows the original in showing the butler, with Sarkozy's head on the black-suited figure, leading Miss Sophie, with Merkel's head, up the stairs. As he holds her arm, Sarkozy promises to give Merkel his "triple A," clearly a wilted promise in light of the downgrade. The dialogue is only in German, but the video has been viewed hundreds of thousands of times on YouTube.

With its pointed economic and political comments, the skit makes the original look dated and fuddy-duddy. The 18-minute original sketch, shot in black and white, is entitled "Dinner for One" and shows Miss Sophie at her 90th birthday party toasting her friends, who have long departed but she assumes they are still at the table. Butler James sups their drinks and stumbles round the table, almost tripping on the head of the tiger skin rug.

"Dinner for One," which actually features British actors, has been shown on German television stations every year on New Year's Eve since being made in 1963, and has become something of a cult.

The satirical version is not so gently mannered. It is titled "the 90th Euro Rescue Summit — Or Euros for No One", and has Merkel drinking to her long dead friends, including Greece's Prime Minister George Papandreou and Spain's Jose Luis Rodriguez Zapatero. At one stage Merkel reprimands Britain's David Cameron, who is also not there, telling him, "Don't forget we speak German in Europe."

Sarkozy pretends to be Cameron and says to Merkel in English, "you are looking younger than ever," before continuing in German, You are looking richer than ever." Sarkozy is getting so tipsy drinking for the absent friends that Merkel warns him, "Nicolas, think of your credit rating."

The narrator is heard sighing, "This is what happens at every euro rescue summit, whether or not anyone else is there, it is just these two doing everything themselves."

After the downgrading of France and eight other eurozone countries, Sarkozy is even more clearly cast as butler to Merkel as the stern mistress of Europe. It will be interesting to see after his political loss of face, new troubles with the Greek debt write-down, rising unemployment across Europe and talk of recession even in Germany whether he will dare to suggest to Mistress Merkel that she change her priorities. Merkozy, as the duo are known, may say that European fiscal union, including stricter tax, spending and deficit rules, is the logical accompaniment for the common currency.

But even iron logic runs into the cold steel of political opposition. Opinion polls, reflecting well-documented public sentiment, show that people in many euro countries, and certainly in the noneuro countries like Britain, are adamantly opposed to handing over decisions on what taxes they will pay or whether their governments can run budget surpluses or deficits to eurocrats. The fact that the eurocrats are not elected and their rules and regulations, not to mention their salaries, add to the costs of doing business adds to Europe's democratic deficit.

However much Merkel or her butler Sarkozy may object, this is the political reality of a Europe of nation states. It is so even in France and Germany. Neither Sarkozy nor Merkel has shown willingness to sacrifice national power to a European state. Merkel, with France in tow, believes that her own policies are the right ones and others must fall into line, or the German electorate, unwilling to pay the price of bailing out the "Club Med" southern European countries, will vote her out.

This is not a European policy: It is an exercise of raw, even brutal, German power. But there is also a glaring economic deficit with the Merkozy agenda. Nobel laureate Joseph Stiglitz this week was the latest economist to claim that austerity is the wrong policy.

The risk indeed is that the plans for fiscal union will be irrelevant because the austerity planks in the Merkozy economic platform are so rotten as to threaten the whole European edifice.

Merkel is sticking to her guns that excessive government spending and deficits created the economic mess, and bringing them under control is the essential painful way out. She admits that there will be "setbacks" on the way, "but at the end of this path Europe will emerge stronger from the crisis than before."

Merkel has conveniently forgotten that not everyone can be creditors at the same time, and that creditors and debtors are matched pairs. Europe's economic prospects are grim, and impending recession will make them grimmer. Citigroup economists forecast that GDP in the eurozone will contract by 1.2 percent this year may look optimistic by the time of the next summit at the end of the month.

How much unemployment can any country bear, especially when the cushion of social security is removed? Nothing in the Merkozy plan or the way it has been presented offers any hope. Merkel has forgotten her Christian past, where forgiveness of debts was a recurrent item at times of crisis, stretching back into Old Testament times.

Any attempt to create a European fiscal union must first allow time as the great healer. That time must be used to create fundamental reforms by providing interest relief for weaker countries. It must also address relative unit-labor-cost competitiveness. Then it must restructure excess debt. After that, a fiscal union might work, although it will be hard work in the face of the animal spirits of electorates who can only see their own region, dimly their country, and not at all Europe.

So the leaders are left with a less than perfect union. But the perils of dissolving it may keep it together. Even if only Greece left the euro, gloomy analysts say that martial law and strict capital controls would have to be imposed to stem the panic. If the euro broke up, Europe would face chaos and mayhem — which makes it all the more puzzling that Merkel cannot offer a plan with greater vision than saving her political skin.

Is there hope that the demands of political survival may change Sarkozy's obsequious attitude?

Strangely, he discovered a "scheduling conflict" that led to the late cancellation of this week's summit with Merkel and Italy's Prime Minister Mario Monti.

International Monetary Fund deputy managing director David Lipton warned that Europe could be swept into a "downward spiral of collapsing confidence, stagnant growth and fewer jobs. And in today's interconnected global economy, no country and no region would be immune from that catastrophe. This is especially true for Asia."

Kevin Rafferty is editor in chief of PlainWords Media.

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