Since the beginning of the eurozone crisis European leaders have attended summit after summit, which tend to result in little effective action. In light of the European Central Bank’s recent decision to buy stricken country’s bonds, Federico Castiglioni argues that the power to shape Europe’s financial and fiscal future may now be vested in the monetary policy of central banks

Castiglioni, Federico

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blo gs.lse.ac.uk http://blogs.lse.ac.uk/europpblog/2012/10/06/europe-central-banker-power/Ang e la Me rke l, Mariano  Rajo y, Franco is Ho lland  and  Mario  Mo nti Cre d it: Mariano  Rajo yBre y (Cre ative  Co mmo ns BY NC ND)While Europe’s political leaders continue their diplomaticdance, real power in the eurozone has shifted to centralbankers.by Blog AdminSince the beginning of the eurozone crisis European leaders have attended summit aftersummit, which tend to result in little effective action. In light of the European Central Bank’srecent decision to buy stricken country’s bonds, Federico Castiglioni argues that the powerto shape Europe’s financial and fiscal future may now be vested in the monetary policy ofcentral banks.At the Vienna Congress of  1815, which was supposed to redraw Europe’s polit ical map,Prince Charles de Ligne witt ily remarked: “Si le congrès dance, il ne marche pas.” If  theCongress dances, it does not move along. He believed that the European aristocracy was showing moreinterest in the gala balls of  imperial Vienna than in the painf ul responsibility to design a new polit ical orderaf ter the French revolution.Centuries have passed, buthistory – especially Europeanhistory – has a tendency torepeat itself . From thebeginning of  the Eurozonecrisis, images of  high- levelmeetings, conf erences,working lunches and dinnersappeared on the evening news.The main participants were the“big f our” of  the Eurozone:Germany, France, Italy, andSpain. The only def initeagreement that has come outof  this mass of  social eventsis that no real agreementexists, except the collective will to continue the subtle diplomatic dance. On economic issues, Europe doesnot speak with one voice. But the dance has become important in itself . It is mandatory that one keepsdancing with all the other heads of  state. Denying a dance to someone might result in serious annoyance.This is true in the case of  France, the reluctant mistress of  the ball, who sometimes seems to side with herMediterranean neighbours and sometimes denies any allegiance to them whatsoever. France cannot decidewhether it is better to be last among the strong powers, or f irst among the weaker ones.It is also true in the case of  Italy, which sides with Germany on questions of  f iscal austerity one day, andcourts the French with calls f or a stronger European Union the next. In the end, Italy is rebuf f ed by bothFrance (which f ears contagion) and by Germany (which continues to embrace the prejudice that NorthernEurope is hard working, while Southern Europe remains lazy and sunbathing).It is true in the case of  Spain, the f irst country of  the gang of  f our to show visible cracks and is shunned byeveryone else as a result. Even Italy isn’t too keen on talking with the Spanish at the moment: it does notrequire the same kind of  assistance and theref ore looks to Spain with the suspicion reserved f or a f riendwith an unexplained f ever, who wants to come over f or a visit.Finally, there is Germany, the rich girl at the party. Chancellor Merkel does not deny anybody a dance: not toMariano Rajoy, the Spanish Prime Minister, who is asking f or money f rom the European Central Bank inexchange f or better budgetary control. Not to Mario Monti, Italy’s prime minister, who insists that Europeneeds better polit ical governance. Not to François Hollande, the French president, who promotes thetradit ional Franco-German alliance and leadership (and is caref ul to insist on precisely that order:The Franco-German alliance).And thus, the congress dances without really moving.In 1815, the sudden reappearance of  Napoleon put an abrupt stop to the dancing. When the old emperorreturned f rom exile in Elba and seized power in Paris once again, f ear became the driving f orce in Vienna.Napoleon, like today’s f inancial crisis, was a much greater threat to the European polit ical balance ofpowers than any decision coming f rom meetings in Vienna could have been. Thus, career diplomats likeMetternich and Talleyrand f ound themselves in the posit ion of  having to remove all roadblocks and settlemost open problems within a f ew weeks, of ten passing over the heads of  their kings.Is there something that could have a similar ef f ect in 2012? Evidently, neither the threat of  recession norrising unemployment are suf f icient to shake up the dance f loor. We have become too accustomed toworrisome statistics and the closing of  f actories between Hamburg and Lisbon. Maybe today’s Napoleonsare the central bankers, the only ones who seem to have the will and the power to plan their moves and tof ight on the f inancial battleground of  the Eurozone – in place of , and in spite of , national governments.The decision of  European Central Bank President, Mario Draghi and of  the other central bankers (with theexception of  Germany) to buy bonds of  countries with high spreads in the secondary market is ademonstration that daring decisions are still possible. But it illustrates that polit icians and governments aremore witnesses than active players. It also demonstrates that a single centralized institution is morepowerf ul and credible – in Europe and outside Europe – than any agreement result ing f rom the danceamong two, or f our, or twenty-seven countries.The f ounding f athers of  liberal economics thought of  central banks as weak powers that had to beautonomous f rom polit ics to maintain independence and prevent the manipulation of  data and decision f orpolit ical advantage. They had never envisioned a situation with strong central banks and weak polit icalpower, like the Europe of  today.In this environment, the f ight between the European Central Bank and the German Bundesbank (andbetween their respective heads, Mario Draghi and Jens Weidmann) ref lects the shif t ing balance of  powersin the eurozone. The f act that their decisions are taken with no concern about the social stability of  theEuropean countries, without any common course of  action f rom ECOFIN (the committee of  Europeanministers of  f inance), and without any participation f rom the Barroso and Van Rompoy shows theimpotence of  institutions besides the central banks.In the absence of  a European Finance Minister, when ministries of  f inance f ail to f ind a common view andcourse of  action, the power to shape Europe’s f inancial and f iscal f uture is vested in the monetary policyof  central banks, with each central bank inf luenced in its actions by the need to protect itself  and its ownmission. The German Central Bank is trying to avoid any hint of  inf lation – that is its main institutionalobjective, while the ECB tried to prevent the f ailure of  the common currency, which would also imply thedemission of  the ECB.Maybe all this will convince European polit icians to stop their dances and seize the polit ical init iative anew.Right now, they seem to have passed it over to the bankers that they themselves appointed. Or maybe we,the cit izens of  Europe, must grasp the importance of  polit ical action. While the heads of  state continue todance, in the splendor of  the summits in Paris or Rome, the true Europe is in the making in the f inancialtowers of  downtown Frankf urt.This article first appeared at The European.Please read our comments policy before commenting. Note:  This article gives the views of the author, and not the position of EUROPP – European Politics andPolicy, nor of the London School of Economics. Shortened URL for this post: http://bit .ly/R3oqCs _________________________________ About the authorFederico Castiglioni –  European Federalist MovementFederico Castiglioni is a member of  the European Federalist Movement and collaborateswith the online magazine “Crit ica Liberale”. He holds a B.A. in History and InternationalRelations f rom the University of  Rome, with a thesis on the “Idea of  Europe”.

While Europe’s political leaders continue their diplomatic dance, real power in the eurozone has shifted to central bankers

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