There may be some residual skirmishes, but the rear-guard resistance against the euro zone “fiscal compact” doesn’t stand much of a chance.
The treaty’s ratification is certainly looking problematic in some countries. Ireland will put it to a popular vote, the Dutch Labor party – whose votes the minority government needs – threatens to oppose it, and French socialist presidential contender François Hollande wants to push for a substantial “renegotiation” if he is elected. More generally, parties from the left across Europe are objecting to legislation they see as dictated by the defenders of strict fiscal orthodoxy.
Markets so far don’t seem to worry about the possible risks of the pact falling apart, and with good reason. The treaty needs the backing of only 12 of the 17 euro zone members to come into effect. If France was to be among the refuzniks, the compact would certainly lose some of its potency and much of its political meaning. But the treaty’s main requirements – enhanced fiscal monitoring, and sharper sanctions – were already fully enforceable in European law. At the urging of Germany, euro zone leaders simply agreed to enshrine those rules into a more solemn form.
The bigger problem may be that objections to ratification will be seen by the austerity zealots of the euro zone – the German government and the European Central Bank – as justification for fiscally irresponsible governments to resume their old ways. But such fears are overdone. France’s yields didn’t budge when the country was downgraded by Standard & Poor’s. But Spanish and Italian yields, still hovering around 5 percent for 10-year bonds, are a powerful reminder of the price to pay for carelessness.
In reality, it is probably time for European Union authorities to adopt a more subtle approach, considering the risks that the current recession, coupled with blind austerity, sends the region’s economy into a tailspin. The flexibility shown for Spain last week was welcome. The parties and governments who are calling for more emphasis on growth are right. But as long as the ayatollahs rule the day, they stand little chance of being heard.