Nicolas Sarkozy's Latest Humiliation

By Peter Wilson
November 07, 2011

The great scriptwriter in the sky used heavy-handed symbolism for the closing scenes of the failed G20 summit in movie festival town Cannes.

Just after the summit host, Nicolas Sarkozy, had admitted that the world's leading economies had refused to provide some desperately needed help in Europe's credit crisis, the French President marched outside with his American counterpart, Barack Obama, for an open-air military ceremony.

And the Riviera's normally sunny heavens literally rained on Sarkozy's parade.

Sarkozy had hoped a triumphant summit would revive his chances of being re-elected next year but after the meeting flopped he was shown on television standing humiliated in pouring rain, a shrunken and tired figure with water streaming down his face as he and Obama listened to their national anthems.

Obama laughed off the discomfort, just as he had joked a short while earlier about getting "a crash course in European politics" at the frustrating summit.
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"There are just a lot of institutions here in Europe (and) a lot of meetings," he said. "So having to co-ordinate all those different interests is laborious, it's time-consuming, but I think they're going to get there."

Obama was referring to the "herding cats" nature of dealing with the 27 EU leaders, including Italy's clownish Silvio Berlusconi and Greece's George Papandreou, who spent last week single-handedly jeopardising the continent's entire financial system.

The US-born Greek Prime Minister is highly intelligent and an unusually global-minded politician -- the man speaks Swedish, for God's sake -- but he played a dangerous game of domestic political brinksmanship despite the damaging impact it was having on the rest of the continent.

By announcing a referendum that would allow Greek voters to torpedo the latest euro bailout package, Papandreou raised the stakes so much that Greece's main opposition party was forced to fall in behind the bailout -- but in the process he sidetracked the G20 summit, plunged the euro into turmoil and sent the cost of borrowing for vulnerable countries such as Italy to dangerous levels.

And yet even that experience gave Obama just half the picture of the fractured nature of EU politics.

Only four of the 27 EU nations are ruled by single-party governments with their own parliamentary majorities. They are Greece, which is likely to appoint a coalition in the next few weeks, France, Hungary and Malta.

Little Malta has a two-party electoral system, which makes it the only EU country where single-party rule is assured, but even there things are finely balanced with the 69-seat parliament split 35-34 and the President and Prime Ministerin rival parties.

The other 23 EU nations are ruled by minority regimes or coalitions, so Europe is now governed by more than 70 different political parties, ranging from Finland's Green League and Cyprus's Communist Party to "Freedom and Solidarity", the hardline free-market party in Slovakia that briefly held up the Greek bail-out last month.

Try to get consensus from that lot. And there are even more cats to herd because some opposition parties also have the power to block EU-wide agreements.

The Dutch coalition includes the far-right party led by Geert Wilders, which opposes the EU, so the government there relied on the opposition Labour Party to support the bailout. When Papandreou announced his referendum plan last week, Dutch Labour was the first party to retaliate, by withdrawing support for the bailout.

All of which means major investors in Europe now need to analyse not just the economics of the continent but the Austrian Social Democrats' attitude to credit swaps and the Danish Liberal Party's thoughts on the role of the International Monetary Fund.

As Prime Minister Julia Gillard and her British counterpart, David Cameron, were reminded in Cannes last week, lacking a parliamentary majority can make a party leader wary about signing up to multilateral agreements, as they are more than usually vulnerable to even the thinnest and most populist of domestic attacks.

Opposition Treasury spokesman Joe Hockey and his British Labour counterpart, Ed Balls, criticised the plan backed by Gillard and Cameron to increase IMF resources, falsely portraying it as a move that would cost their own nations' taxpayers dearly.


It is possible Hockey was not deliberately misrepresenting the situation and that he simply does not understand that loans to the IMF are not a "cost" because they stay on a government's books as an income-earning asset.

But Balls cannot plead ignorance. He is a serious economist who used to chair an important IMF committee, and he knows exactly how it works.

All of this fragmentation of European political power is not a result of the EU being more diverse than the US. In fact there are probably more social, political, ethnic and religious differences between New Hampshire and New Mexico, or Texas and Oregon, than there are between Belgium and France, or Austria and Germany.

The problem is the fractured political architecture that comes from the EU being made up of sovereign nations, which understandably resist giving too much power to the centre.

That is why there is such a complex system of institutions and leaders, which will soon grow with a new president for the 17 nations that use the euro.

There had been hopes that splitting the 27-nation EU into a more tightly co-ordinated eurozone "inner tier" and the British-led group of 10 non-Euro countries might simplify things but the "outer tier" is fundamentally split.

Only Britain and Denmark have won formal opt-out clauses allowing them to stay permanently out of the euro if they wish. The other eight countries are all technically going through the process of qualifying for the euro.

That means the British-Danish pair, which account for most of the economic output of the outer tier, will always have an inherently different attitude towards the currency and the sacrifices that need to be made to support it.

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