A Summit! The Grand Bargain arrives!

What’s happening next week? You’ll never guess, so I am going to tell you. There’s going to be a euro-summit. Yes.

Obviously if you are a chef or a gourmet eurocrat you probably can’t contain your enthusiasm, but some of the rest of us are finding our palates a little jaded.

The story is being put out that they are near to a deal on saving the euro, and that will certainly please the markets. Indeed we all have an interest in the current turmoil abating. The agreement is being called The Grand Bargain.

However it would be wrong not to sound a small note of caution. The proposed plan will be, as it was always going to, a synthesis between the French and German positions. That is to say that the French want the weaker countries to be bailed out, and the Germans are worried about moral hazard: that they will spend their money and it wil just encourage the naughty children to misbehave again. Angela Merkel wants a legal framework, giving the Brussels budgetary office the right to inspect the budgets before they are put to national parliaments (you will remember that the Irish Prime Minister was found asking permission of the Germans for his December budget before announcing it to his MPs). The European Court of Justice would enforce budgetary discipline.

But there are implications of this: the first is that some countries might not like the idea. New found democracies tend to guard their independence rather carefully. And of course the German parliament and constitutional court might still find the terms over-generous. And it will take some time to amend the treaties, during which it is the nature of euro-negotiation to descend to the level of the pork barrel. Mr. Cameron’s MPs want him to demand repatriation of some powers before agreeing to a deal.

Another problem is that whilst the payments imbalances are serious, they are in some respects only the symptoms, not the disease. The reason Italy and Greece are in trouble is that they have not modernised their economies and are still hopelessly inefficient. It is thought that, since the introduction of the euro, Italy’s competitiveness has fallen with respect to Germany’s by 50%. Suppose that Italy doesn’t reform its labour .laws, or that in order to get the budgetary measures through it gives out some more generous rights to trade unionists (already it is almost impossible to lay off Italian workers). Would the Brussels commissioners have authority over that, being able to forbid country-specific labour laws? Or regulate anything which affected productivity, such as education? How will other nations react to that?

The further we get down this path, the further, it seems, that we still have to go.