The Merkozy Settlement – the deal struck last Friday for fiskalunion in Europe – is beginning to fall apart. The markets are signaling their distrust of the last minute deal and no amount of rhetoric will cover over the cracks already appearing in the arrangements intended to shape the future of Europe.
It began when Ireland made clear that, since the loss of sovereignty was so serious, a referendum may be required so as to confirm their ability to sign onto an arrangement. Since no text of an agreement was available last week – first ministers signed onto an idea, not a specific document – much will depend on language and first principles. Other countries - Sweden, Denmark, Czech Republic and Hungary – are also indicating that they are having serious second thoughts. These four countries are not in the Eurozone.
The Independent (UK) also reports that there are significant tensions in Eurozone countries, including Germany, France, Italy, Ireland and the Netherlands over precisely how the fiskalunion will work. French opposition leaders and emerging candidates for the French Presidency, up for election next year, are signaling that they are deeply disturbed by some aspects of the deal. In Germany, the resignation of Christian Lindner, the general secretary of the Free Democrats, the junior partner in Ms Merkel's coalition, also signals tension.
So the end result may well be fiscal union, not at all (überhaupt nicht). This may be a good thing in the long term, since the deal does not address the core economic issues faced within Europe. In the short term, however, it will be very messy both in terms of debt management but also politically. Eurogeddon, the phrase I used yesterday to capture the essence of what is happening, seems even more appropriate today than yesterday.