Franco-German secret negotiations for new euro contract

Die Welt has all the big stories this weekend. I just reported on the news that Eurobonds are on the table despite repeated official denials. Now we learn that German Chancellor Angela Merkel and French President Nicolas Sarkozy are working on a secret plan to present to the EU heads of state summit on 9 December. According to Die Welt’s Sunday edition, Welt am Sonntag, this proposal will include bilateral aid support from 9 countries in order to short circuit the cumbersome and unanimous treaty change route to getting the fiscal union Merkel has said she wants.

Note, despite reports in the English-language press that Die Welt originated this story, the article clearly states that German tabloid Bild Zeitung is the origin of this story, with a link to the Bild story.

German translation:

Germany and France want to force a new euro stability agreement at record pace, if possible by January or February 2012. The "Bild" Zeitung reported this, citing diplomatic sources.

According to these sources, Chancellor Angela Merkel (CDU) and French President Nicolas Sarkozy are considering closing the new stability pact first as a contract between nation states – similar to the initial agreement on the abolition of checks of persons in the EU ("Schengen Agreement").

Merkel and Sarkozy would overlook the traditional role of the EU Commission if necessary. The duo want to introduce their plans at the next EU summit on 8 / 9 December already. Strong protest is expected mainly from Great Britain, which although not part of the euro zone, does not want to be further sidelined.

Merkel and Sarkozy had announced on Thursday their intention to present a total package to stabilize the euro-zone in the coming days. A central part of the package should be an EU treaty change, with which much closer cooperation and control in the common currency area would be enforced.

Note that these stories about eurobonds and bilateral government aid agreements ran on the same day that Welt am Sonntag’s editorial proclaimed Eurobonds? Hold the line, Mrs. Chancellor and two prominent articles were headlined Industry backs Merkels no to Eurobonds and Germans support Merkels course in the euro crisis.

The last article says Merkel has seen her crisis favourability rating rise 18 points to 63% since the beginning of October. This is probably attributable to her hard line on debt, deficits and Eurobonds. So we can see that the German press and electorate are firmly against these kinds of deals despite reporting them.

Boxed in by the ever-worsening sovereign debt crisis, the Franco-German euro zone axis is trying to formulate a policy that both adheres to the German economic orthodoxy without worsening the crisis any further.

Source: Geheimverhandlungen über neuen Euro-Vertrag – Die Welt


Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.