The Sarko smackdown!
I've just had, as far as my French can comprehend, a verbal run-in with the President of the République Française. Nicolas Sarkozy came on stage with a face like thunder for reasons I will explain below. He took two questions from the French and Chinese press, and then me.
I asked: "It's evident that you and Mme Merkel, the two most powerful governments in Europe, are trying to change the governments of Italy and Greece. How is that just? And once it's started, where does it stop?"
His answer was that I was wrong, that I had made my mind up in advance, that I did not understand the subtleties of the European construction because I am from an island.
He then denied that there was any attempt to remove the governments of Greece and Italy, and said that was not what democracy was about.
Within the hour it was announced that Italy, having refused money from the International Monetary Fund, had accepted IMF "surveillance" of its public finances. During the week German Chancellor Angela Merkel is said to have phoned the Italian president to explore the possibility of a change of government. EU officials have certainly been in contact with the Greek opposition to explore the creation of a national unity government. We will find out about that today.
I will be surprised if either government survives, and of course external pressure is only one factor here: both are crumbling internally under pressure of implementing austerity on their own electoral bases.
Afterwards, we found out the reason for Mr Sarkozy's annoyance, and also that of David Cameron, who looked similarly racked-off. It turns out that Germany has, yet again, nixed a vital part of the international plan to save the eurozone.
The Brit special advisers were briefing that the IMF might issue Special Drawing Rights - this is like printing money. It's a politics-free alternative to actually borrowing the money and having to get the decision through parliaments. Mrs Merkel vetoed the idea and then left the summit early. It's been briefed that she's run into opposition from the Bundesbank - either to the IMF plan or to specific proposals to expand the EFSF.
SDRs were issued for the first time in decades at the April G20 in London - to the tune of $250bn.
We are still waiting for the final communiqué but where all this leaves the effort to save the eurozone is this:
- The deal agreed in Brussels is back on track, in the sense that it remains as fuzzy, unfunded and incoherent as it was on 28 October, but has not been formally nixed by Greece. It apparently took the combined might of Barack Obama and Hu Jin-tao pressuring Europe to get this done, and the combined might of Sarkozy and Merkel on Greek PM George Papandreou, finished off by the combined might of every internationally clued-in MP in Pasok.
- But the EFSF remains at the design stage - Merkel's storm-out came after she had briefed journalists that no G20 outside Europe would commit to lending to the EFSF. This is a dig at China, and China is not buying because it realises that through the EFSF it could lose its money - whereas through the IMF it cannot.
- So the IMF is under pressure to be part of the euro solution - I understand from the Brits this will be formally acknowledged in the communiqué. But even here, you run into democratic accountability. The US has not even got Congressional approval for the last tranche of IMF money it committed to - and David Cameron is pretty clear he cannot win another vote to expand Britain's IMF commitment (about £30bn currently of which £5bn drawn down).
- So it's all down to the ECB. The Germans - indeed northern Europe - have created a trap for themselves in which it is either fiscal union or a rough-hewn fiscal union in which the ECB does the heavy lifting, in defiance of its mandate and culture, and the instincts of the national central banks.
It is, as I said on Newsnight last night, like pass the parcel with a stick of financial Semtex: Greece as the detonator, Italy as the explosive mass.
I am glad the president felt able to engage me in frank exchange: when I shouted to Signor Berlusconi last week "how can the world take you seriously if you can't implement austerity?" a number of svelte Italian TV presenters nearly had an attack of the vapours.
Rest assured I have a whole bunch of other impertinent questions to ask the heads of state of China, Russia etc should they care to come on Newsnight.