October 28, 2011
After the latest “comprehensive solution” to the eurozone sovereign debt crisis, the eyes of the world remain on the debt markets. Judging by Friday’s adverse movements, there is scepticism about the financing. Observers should pay equal attention to the political consequences of the deal. The remorseless logic of the monetary union is starting to bite. As member countries embrace each other ever more tightly, the issue of political legitimacy risks becoming ever more explosive.
The first signs of these new tensions have already become visible. The press conference in which the Merkozy diarchy of the French and German leaders publicly dismissed Silvio Berlusconi’s credibility with a telling smirk amounted to a slap in Italy’s face. In a further humbling move, the government of the eurozone’s third-largest economy was later forced to draft a letter of intent, outlining the reforms it would enact and a timeline to deliver them.
Whether Mr Berlusconi is able and willing to deliver remains highly uncertain. But Italy was not alone in the dock. As part of the deal to solve the Greek debt crisis, a permanent on-the-ground surveillance presence will oversee the country’s progress in its structural adjustment programme. This means far more intrusive oversight over its fiscal matters. To preserve the members’ fiscal discipline, it was further agreed that all countries should enshrine in their constitution a German-style balanced budget rule.