The Continentalist: Europe Nears Its Hamiltonian Moment

The Continentalist: Europe Nears Its Hamiltonian Moment

The European Union’s solidarity vs. sovereignty game of chicken goes another round this week with the EU Council meeting on June 28, and its key actors are France and Germany. France, and others, are seeking a banking union and ultimately eurobonds; German Chancellor Angela Merkel wants collective oversight on spending beforehand. Who gives in first is the crux of this negotiation, and it boils down to a question of trust. My take on the subject at this stage of the events: Trust Germany -- and hope that France does, too.

I already explained last week in this column that the Germans are losing patience with the other EU member countries, especially France, that don’t “get” the argument for why currency and political oversight must be joined together tightly. Germany wants political concessions on fiscal oversight from all eurozone countries before increasing fiscal solidarity. And for all that the Germans might be criticized for in their handling of the EU’s crisis management over the past two years, this time Germany is right: If the proposed banking union and a common European guarantee scheme for deposits, let alone a complete fiscal union, were a marriage proposal, it is time for the other countries to put up their political dowry.

It has been clear for months now that the German government has decided to do the bare minimum necessary to prevent the euro from collapse at each turn of the crisis. This will prove true this week as well. After tough negotiating, the upcoming EU Council summit will in all likelihood settle on a technical solution to bring down Spanish and Italian interest rates, probably by temporarily supporting their banks directly through the European Financial Stability Fund/European Stability Mechanism to buy more time. It may even pave the way for a future banking union and show “strong elements and a short road,” as Italian Prime Minister Mario Monti put it Friday at a meeting with French President François Hollande, Spanish Prime Minister Mariano Rajoy and Merkel. But as in the past months of the crisis, this will not be the ultimate solution, just another clear step demonstrating Europe’s political commitment to pursue further integration and make sure the euro stays afloat. Markets seem to increasingly get this story.

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