As European stock markets slump ahead of Wednesday's European Union summit, new fears of a euro zone recession abound. Coming to an agreement on actions to deal with this crisis has set some of the EU's largest countries against each other. Frustrations have led to personal criticisms this week as French President Nicolas Sarkozy's criticisms of British Prime Minister David Cameron for his remarks on the euro zone debt crisis. Despite these remarks, it is important that the non-euro zone EU countries attend the debt crisis talks.
The EU has historically had trouble finding the balance between governing an economic and political union and respecting the sovereignty of individual nations. Such issues have come to a head during the debt crisis and recession talks — after a Franco-German meeting with Italian Prime Minister Silvio Berlusconi to force a quicker economic overhaul in Italy, Berlusconi fought back with a strong statement this week, arguing against EU administrators having more power than elected national government officials. This statement effectively constructs a barrier between European Union economic policy and Italy’s economic reforms and complicates the euro zone’s bailout measures.
Despite uniting against Italy, both France and Germany do not agree on the extent of the euro zone bailout funded by core members — in large part themselves — for weaker nations, such as Greece and Portugal. France's own weakening economy in the last few months has increased investor fears that the bailout fund will not be strong enough to do the job. This has led to a French concession in the debt crisis negotiations — they are no longer fighting for an enlarged bailout fund.
Germany remains the euro zone’s economic powerhouse, which gives it political power going into the EU meeting, but how long will it avoid recession? Germany has been kept afloat by a rise in the service sector, but in recent months, both manufacturing and exports have fallen.
It is within this climate of economic uncertainty and political conflict in the euro zone that will undoubtedly have large impacts on the entire EU, not to mention international finance, that Sarkozy rebuked Cameron for criticizing their handling of the euro zone debt crisis, this despite Britain not being on the euro. While non-euro zone EU members should stay out of the currencies macroeconomic policy normally, such comments are not helpful on the eve of a large-scale crisis.
Non-euro zone EU members have a right to attend large euro zone economic meetings that will impact their own economies despite being on a different currency. Such meetings should have structured agendas to keep non-euro zones interests from becoming the priority, but without the buy-in of the non-euro zone members it may be difficult for the euro zone to go ahead with its bailout plans, which include a scheme to encourage foreign investment to support the euro zone bailout. Such a scheme would also be open to the United States and China, but as close neighbors to the euro zone and EU members, the United Kingdom, Switzerland, and other large non-euro zone nations have great incentive to support the scheme as well.
Sarkozy's remarks did not garner much support as it was finally decided that in addition to the 17 euro zone nations, 10 non-euro zone EU countries will attend today's meeting.
European leaders, euro zone or otherwise, need to come together to support action to mitigate the impact of the debt crisis and looming recession on the European economy. This will require walking the shaky line between EU institutions and national constituencies, as Cameron has already discovered, but without wide cooperation and agreement to today's plan, Europe may once again succumb to recession.
Photo Credit: The Prime Minister's Office