The parting of the Mediterranean Sea: more freedom south, less freedom north.
One year ago, Tunisians kicked out Zine El Abidine Ben Ali, freeing themselves of a dictator in power since 1987. That set off the Arab Spring which changed the political landscape in North Africa and the Middle-East. Many people living on the southern and eastern shores of the Mediterranean took to the streets in protests against dictatorships, monarchy, corruption and poor economic conditions, seeking to free themselves from years of political, economic and social oppression.
Within less than 14 months, major or reasonably major positive outcomes have been observed in 15 Arab countries with protests ongoing in 9 of these countries.
During the next several months, countries on the northern side of the Mediterranean will be asked to ratify a treaty which will severely limit the sovereignty of democratic governments and radically change the lives of the people in most of the 17 countries forming the Eurozone.
Countries adopting the treaty will be living with a teutonic fiscal straightjacket which, combined with the 1999 loss of their national currency and monetary policy, will essentially result in the subordination of a large part of each nation’s economic and fiscal policies to the diktat of mostly non-elected eurocrats impacting the lives of extremely diverse people. The single option: get out and swim on your own!
How will that go? Not smoothly, that’s for sure.
It really all began with Angela Merkel, seemingly seizing the opportunity, declaring on November 14, 2011:
It is time for a breakthrough to a new Europe. The task of our generation is to complete economic and monetary union, and build political union in Europe, step by step. (…) That does not mean less Europe, it means more Europe.
For most European countries and most Europeans, it sure means a lot more Europe, or, to be more accurate, a lot less Greece, a lot less Italy, a lot less Spain, France, Ireland, etc. In effect, a lot less economic freedom for most everybody in Europe as politicians have agreed to cede much of their economic sovereignty to an unelected foreign body, the European Commission, with permissible budget deficits effectively set by the Germans and empowered by the European court.
Can politicians deliver a quick and smooth ratification? Can politicians convince their constituents that they must surrender a lot more powers than in the failed Constitutional Treaty of 2004? And, importantly, can national parliaments ratify without polling their people? And if there is polling, will it go through?
The political reality of Europe is that such a far reaching treaty will likely have to be ratified by a referendum in several countries. In 2004, referendums were required in 7 of the 25 EU states (Denmark, France, Ireland, the Netherlands, Luxembourg, Portugal and Spain). Spain and Luxembourg endorsed the treaty but its rejection by French and Dutch voters brought the ratification process to an end.
In the current saga, a vote against the agreement would also be a vote to leave the Eurozone.
Whatever the outcome, the reality is that the next several months will be dominated by Euro-politics and, given the current trends in European economies and the political situation in many countries, the ratification process will be anything but smooth.
Some (German) officials have suggested that the recent agreement be presented as an amendment to the existing treaty, thus eliminating the need for national parliament approval and possible referendums. But it is highly unlikely that the most significant constitutional change in Europe since WWII can be rammed through without proper and legitimate popular approval.
As an appetizer, here are the approval rates of political leaders in Europe:
Unsurprisingly, governments in countries currently facing harsh economic conditions enjoy pretty low approval ratios, severely limiting their ability, and willingness, to fight against popular polling for such important changes.
There will be 5 crucial elections in Europe in 2012: Finland looks like a slam dunk, but France, Greece, Slovakia and Slovenia seem highly problematic. If anything, the French elections, to be held April 22 and May 6, will be carefully watched by investors.
So it has fallen to the Socialists – less compromised lately – to start the rebellion. “We cannot let the Germans alone appoint themselves experts and judges,” said party leader François Hollande. He called for “substantial modifications” to the fiscal compact if elected president in May, as he may well be since he is running six points ahead in the polls.
Pierre Moscovici, his campaign manager (and former Europe minister), has since upped the ante by threatening a referendum – mischievously noting the French voted ‘Non’ last time they had a chance in 2005.
“I am convinced that we will find allies for a renegotiation aimed at a policy change to pull out of its austerity spiral and recession. We don’t like the idea of a popular vote because we are pro-Europeans and we don’t want a “No”, but nor can we allow tensions to spill over.(UK Telegraph)
Furthermore, we can assume that pressures for referendums will be strong in Austria, Ireland, Luxembourg, the Netherlands, Spain and Portugal. Importantly, Italian elections are due only in 2013 but Mario Monti being unelected and pushing through major austerity measures, it seems plausible to expect a lot of heated discussions on the matter, to say the least.
There is no surprise in the fact that politicians approval ratings are closely synced with economic conditions. The current reality is that the cloud pictured below will most likely shift lower-left in coming months.
- No political smooth sailing ahead! No way to assess the final binary outcome.
- High volatility to continue in fixed income and equity markets.
- The euro will remain under pressure.
- Gold should keep shining.
- U.S. equities should keep outperforming in a rough global sea.
- Euro banks remain unattractive: politicians will continue to hit on banks and bankers, any which way they can, as it will help smooth out greater fiscal austerity among citizens.
- A not insignificant risk is egocentric action by “national” euro banks which, under political pressure, would use ECB funding to buy their own country’s debt while dumping “foreign” assets (i.e their European neighbor’s debt).
- The ECB is unlikely to be “too” accommodative, keeping pressure on sinners to help ratification.