May 14, 2010
It has been an absolutely extraordinary week in European politics. A Con-Lib coalition government has been formed in the UK; the eurozone has been shaken to its very core amid the ongoing sovereign debt crisis; European leaders have agreed on a mind-boggling rescue package worth some €500 billion (and killed the no bail-out principle in the process); the European Central Bank has done what previously was unthinkable and intervened directly in bond markets; the Commission has tabled proposals to give the EU the mandate to sign off national budgets; Angela Merkel has called for a Treaty change to toughen up the Stability and Growth Pact (also calling for a European Army while she was at it); and the UK has become isolated on the very symbolically and economically important AIFM Directive (although the FT was unnecessarily hysterical today).
And today we learn from Spanish El Pais that according to Spanish PM José Luis Rodríguez Zapatero, Nicolas Sarkozy threatened to leave the euro over the weekend unless Germany coughed up money to help Greece and other struggling euro-states. The revelation – which is being denied ferociously by everyone involved – sent the euro tumbling today.
This is what El Pais writes:
“It happened this Wednesday in a meeting with regional and provincial party members in Ferraz. [Zapatero ] gave a speech for over two hours” recapping part of “the eurogroup meeting in Brussels last week. He underlined that Sarkozy had threatened to remove France from the euro.”
It goes on,
“[Zapatero] had a bad weekend in both Brussels and Madrid. But he wasn’t the only one. The tensions experienced by the Eurogroup leaders were such that a moment arrived when they split into two fronts. On one side France, Spain and Italy. On the other side, Germany. [Zapatero] outlined to the members of the [Spanish party] PSOE [Spanish Socialist Workers’ Party] ‘the unusual financial turbulences’ that Europe has seen in the last ten days. And he illustrated the complicated tension of the Eurogroup with some internal comments made by Sarkozy, which those who heard them interpretated as threats. Zapatero said that Sarkozy came to demand a ‘commitment from all to help Greece’ or France will reconsider its position on the euro.’”
One of the people in the audience apparently drew the conclusion from Zapatero’s speech that “Sarkozy had hit his fist on the table and threatened to break away from the euro, which forced Angela Merkel to change her mind and reach an agreement.”
Another person in the audience concluded from Zapatero’s speech that “France, Italy and Spain formed a common front against Germany, and Sarkozy came to threaten Merkel with a break in the traditional Franco-German axis.”
According to the reports, Sarkozy had also said “”if at time like this, with all that is happening, Europe is not capable of a united response, then the euro makes no sense”.
The expression “a week is a long time in politics” feels like an understatement all of a sudden.