Date With Drachma Nears as Less Is More in Europe: The Ticker

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By David Henry

Integration is becoming a dirty word in the European Union. Just when bond markets are looking for signs of cooperation in the 27-member region so they can call off their war on indebted countries, European governments have abandoned the guise of cohesion as they try to hammer out an accord that would commit participating EU countries to tougher fiscal rules.

The Poles and Czechs are sniping at the French (over signing of the fiscal compact); Austria and Luxembourg are squabbling with the Germans and Swedes (over appointing a commissioner to take charge of Greece's budget); the British won't recognize Europe's new budgetary rules;   and the Greeks are bickering with everyone.  Soaring yields on the bonds of Portugal -- which may be the next euro trouble spot -- show that markets believe there is no movement toward integration.

One thing is for sure: ``Fiscal union'' won't mean the surrender of budget sovereignty for any country other than the ones applying for bailout money and even they may be spared that embarrassment. If an EU Finance Ministry were to be created, it would have only enforcement powers, not the right to make policy for member states. This week's reaction to the German proposal made that only too clear.

``Surveillance of Greece's progress is normal, but there was never any question of putting Greece under tutelage,'' said French President Nicolas Sarkozy. Even the junior partner in the double act known as ``Merkozy'' is breaking ranks on the issue of sovereignty, it seems. Austrian Chancellor Werner Faymann said the proposal to give the EU control over Greece's budget ``doesn't achieve anything and it goes in the wrong direction,'' while a Greek minister summed up his nation's take on the matter as ``the product of a sick imagination.'' More Europe suddenly became less Europe when it comes to giving up national powers.

Only the Germans seem to think it's a good idea and even they may see the surrender of Greek budget control to a commissioner in Brussels as a way to get Greece to jump before it is pushed. Yesterday, the supervisory board chairman of Commerzbank AG, Klaus-Peter Mueller, added weight to calls for a Greek exit and said banks might as well write off all Greek debt. There's little incentive for German creditors to maintain solidarity with their Hellenic debtors anymore, Mueller's words seemed to indicate.

Even the European Central Bank is now entertaining the thought of a Greek exit publicly. Governing Council member Ewald Nowotny said he ``can't be sure'' that Greece will be able to carry out the necessary measures to remain in the currency union. Hardly words of encouragement from the one institution that has held steady in its defense of euro-zone membership.

Greece's date with the drachma is drawing nearer by the day. It no longer seems like a question of if, but when and how.

(David Henry is a Frankfurt-based editor for Bloomberg View.)




-0- Jan/31/2012 15:23 GMT