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Tuesday, 11 October 2011

‘David’ Slovakia holds ‘Goliath’ Europe hostage on the EFSF…. and other stories on European dividedness and indecisiveness.

These weeks are an important time for the EU and the Euro-zone. Arguably, the most important time since the introduction of the Euro.

During this period, the decision on the extension of the European Financial Stability Facility (EFSF) must be made by the member states of the European Union. And, like all important European decisions, this one must be made by unanimity. This system of unanimous decisions gives temporarily great power to all nations of the European Union, as every nation has the power to make or break a decision.

But as ‘Uncle Ben Parker’ of Spider-Man Peter Parker said: ‘With great power comes great responsibility’. And therefore the key question of today is: are the Slovakians Spider-man fans? Or will ‘David’ Slovakia stop its Goliath: the EU.

In my opinion, the question on the extension of the EFSF is in reality the subordinate issue. The extension will only be used to maintain the policy of ‘extend and pretend’ and ‘delay and pray’ concerning Greece, that has been advocated by the EU and the Euro-zone, since 2009.

The real issue is: will the EU be able to form a closed and united front, concerning Greece and the other peripheral countries, or will the EU be like the proverbial ‘twenty frogs in a barrow, all jumping in their own direction’? Because, in case of the latter, this could lead to new political conflicts and might eventually lead to a (partial) split-up of the EU if things really go out of hand.

The first signs in Slovakia don’t look very promising. The Dutch financial newspaper Het Financieele Dagblad writes on this story:

The Christ-Democrat prime minister of Slovakia, Iveta Radicova must convince her coalition of the necessity of an extended EU emergency fund. If she doesn’t, her government could fall. It will be close, whether Slovakia is the last Euro-country to approve of the extension of the EU emergency fund EFSF.

The coalition is still divided on this subject. The euro-sceptical government party SaS already announced that it will vote against the new package today. The liberals think that a poor country, like Slovakia should not (partially) foot the bill for the irresponsible behavior of richer Euro-zone countries.

When the parliament doesn’t approve of the EFSF extension, there is a big chance that the Slovakian government will stumble upon this question.

The coalition parties assembled in an extra emergency session to solve the pendign problems. A proposal has been put on the table to consult the Slovakian parliament, prior to every new emergency loan.

The government leaders of the Euro-countries agreed on July 21, 2011 that the EFSF gets more possibilities than only supplying emergency loans to countries. The fund should also be used to recapitalize banks, buy sovereign bonds and hand out preventative support to countries that run a risk of getting in financial trouble.

Bernard Hammelburg, the Foreign Affairs specialist of Dutch Business News Radio station BNR (  and one of the smartest and most authorative commentators I know, said this morning:

‘The European Union has all kinds of tricks to persuade small countries of voting in favor of a necessary proposition. They get extra money in the form of subsidies, a few promises on favorable European arrangements or a special treatment for EU legislation, that is especially important for the country involved’.

And that is probably exactly what is going to happen. Slovakia gets a few extra bucks and a few special arrangements and the EU gets their ‘Yea’ for a bigger EFSF. But this example shows exactly why the EU in its current political form will always be lagging the financial markets. It works in a way, but just not in the way that everybody wants: quick, decisive, united and politically strong.

Everybody is preaching for their own parish and little government leaders are looking at the big picture. And that is that a united and strong Europe ‘under the Euro’ is the best guarantee for quickly returning profitability and economic prosperity.

To show one example of a political leader without a bird’s eye view: Finance Minister Jan Kees de Jager took again his chance to make a ‘pseudo decisive statement’ on the EU again. The FD (

Dutch Finance Minister Jan Kees de Jager is only willing to extend the European emergency fund EFSF, when this is combined with stricter rules for the national budgets of the Euro-zone countries. This Dutch demand is ‘non-negotiable’. De Jager states this in an interview with the Financial Times. He stated earlier that a bigger emergency funds is negotiable, but now he couples this for the first time explicitely with the Dutch plans for a stricter budgetary discipline in the Euro-zone countries.

The Netherlands proposed a few weeks ago to tighten the budget rules in the European Stability and Growth Pact (SGP). The recently finished reinforcement of the pact in the so-called ‘sixpack’, is not vigorous enough, according to the Dutch cabinet. De Jager wants a special budget commissioner to be established within the European Commission. This commission should have an equal amount of power as the Commissioner for Competition.

This Budget Commissioner should put Euro-countries under custody that don’t have an ironclad government budget. The ultimate sanction in the Dutch cabinet plans would be that countries could be expelled from the Euro-zone.

De Jager wants that peripheral Euro-countries agree with this strict regime. Otherwise he can’t approve of the desire to extend the emergency fund.

De Jager’s statement sounds very decisive, but:   

  •       De Jager seems to fight a losing battle with his proposal, as this probably won’t get the necessary majority-vote. He can threaten what he wants, but he won’t get it. And if he threatens to withdraw his support for the extended EFSF, he will make a fool of himself.
  •      When France and Germany need to, they will break De Jager’s budgetary discipline again in the future, like they did before. And nobody will point one finger at France and Germany; not even the strongest Euro-commissioner.
  •       De Jager’s statement will alienate the peripheral countries and will therefore diminish Dutch chances to gain these countries’ votes in important future decisions.
  •       It’s not unthinkable that he might regret this statement in the future, when the Dutch government finances don’t look so rose-colored anymore. The Dutch economy is not hit very hard by the credit crisis yet, but nobody warrants that it won’t be in the future. And then other countries will remember his tough words.
  •      The Northern-European countries are as much responsible for the problems in the peripheral countries, as these countries themselves. The cumulative imbalances on the trade and capital balances are the problem of all European countries.  

Therefore, I’m convinced that De Jager will swallow this plan eventually. But it won’t have helped to create a better and more united and decisive atmosphere within the European Union.

It only distracted from the most important issue on hand: Greece is ready to default and the only thing that the EU can do is to make this process go as smoothly as possible.

If the EU won’t do so, other countries might default too eventually (Italy, Spain). And that’s the real issue!

Update 22:30 (CET)

The Slovakians voted AGAINST the EFSF extension. David got Goliath to his knees. I truly admit, I didn't see this one coming.

The situation reminds me of the old Chinese curse: 'may you live in interesting times'. Well, the times are darn interesting, currently!

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