The bureaucrats of the European Commission, the IMF and the ECB are all in Athens this week to check up on Greek promises to reduce their deficit. To keep an eye on this august group the BBC have dispatched John Humphrys to Athens from whence he goes to Berlin to keep an eye on Sarky and Merkel making the real decisions. I woke to his mellifluous tones on Radio 4 this morning and the even more honeyed tones of Christine Lagarde, the elegant and charming French finance minister effortlessly drawing the teeth of the BBC's rottweiler's questions. Click on link below to hear how its done. She had him eating out of her hand!
The problem is that the Greek government is perceived by its own people as corrupt. Figures will be falsified, politicians and bureaucrats vanity flattered and all will be well until the riots start in late September. The Greek- Bund bond spread remains stubbornly above 6%. Ah these markets can resist even the charms of Madame Lagarde! So M. Charisma van Rumpoy piles in. "The euro became a strong currency with very small interest rate spreads (on government bonds). It was like some kind of sleeping pill, some kind of drug. We weren't aware of the underlying problems," Rompuy told the Financial Times.
Rompuy also attacked the financial markets for overreacting to Europe's economic difficulties and being swayed by "rumours and prejudices."
"The markets were too indulgent in the first decade, but now they overreact a lot of the time to small incidents," Rompuy said.
Ah well that's markets for you best humour them. Hence the EU summit on Thursday. M Barroso has also been talking. "Our priority is putting order into our public finances. We need fiscal consolidation and a new financial stability culture in Europe," European Commission President Jose Manuel Barroso said after meeting German Chancellor Angela Merkel on Friday.
"There is new awareness in Europe that rules have not been respected and must now be respected. Circumventing the rules ... is putting at risk our collective economic future. We need to move in the opposite direction. We need to strengthen our rules and the way the EU runs its economy."
Unfortunately Frau Merkel's plebs are less than convinced. Does the euro zone need an economic government? Oui, say the French. Nein danke, say most Germans.
It is the French dirigiste tradition against the German resolve not to let politicians despoil their currency again. As Reuters puts it,
"The French have pressed for an "economic government" since long before the birth of the single currency, seeking to standardize everything from working hours to business taxes at their levels.
Governments of both the left and right, steeped in the dirigiste economic tradition of 17th century statesman Jean-Baptiste Colbert, sought a political counterweight to the independent European Central Bank.
That is precisely the German nightmare. For Berlin, the ECB must be totally independent of governments with the sole mandate of ensuring price stability in the tradition of the Bundesbank."
French ideas on central tax harmonisation are anathema to the Dutch and the Brits.
They also go down badly in Germany, especially with the pro-business Free Democrats, who suspect the French of protectionism and meddling in the market economy.
All is not harmony in the state of Euroland!