An advance in economic unity

On Tuesday the German Chancellor Angela Merkel and the French President Nicolas Sarkozy agreed to begin work on a set of initiatives, in response to the difficulties that the euro zone has been experiencing recently. In the medium term these constitute a hopeful sign, in view of the urgent need for greater economic governance in the euro zone. The idea of creating a council of heads of state and government, to be initially presided by Herman van Rompuy, evinces a political will to move toward greater fiscal integration of the euro-zone countries, and thus reduces the possibility of a partial secession of Germany and the richer countries - one of the worst specters raised by the difficulties of the peripheral countries.

Some of the proposals brought forward by Sarkozy and Merkel, such as that of standardizing corporate taxes in their two countries by 2013, or using the same methods to prepare their budgets, show that the Franco-German axis is again leading EU policy, just when it is urgent that the two economic heavyweights accept the challenge of taking the helm, amid recurrent attacks on the euro in the financial markets. It is in terms of stronger common economic governance that we must interpret these new efforts to move toward shared fiscal policies, including the introduction of a tax on financial transactions. Perhaps the most controversial point is that of writing a limit on public deficit into the constitutions of the euro countries, which would take some time to enact.

These positive signs will surely produce no euphoria in the markets, which react to news of a more concrete nature; nor are they an immediate remedy for the recent damage done in the euro zone. Indeed, the calm procured in the euro-zone public-debt markets by the ECB's recent purchase moves has not been accompanied by improved expectations of economic growth. In the last quarter the advanced economies experienced a deceleration, which is particularly significant in those that have previously exerted the greatest traction effect on the world economy.

The growth rate of Germany, until now the most dynamic of the euro-zone economies, slowed drastically. Against the 0.5 percent of most forecasts, the growth of GDP in the second quarter compared to 2010 was a mere 0.1 percent: the lowest since the negative growth registered in the first quarter of 2009. The crisis in the rest of the euro zone and in the US has much to do with this slowdown. None of Germany's major customer economies are likely to grow more in the second half than in the first.

Nor did France grow in the second quarter. The malaise in France's economy is due not only to the threat to its credit rating, but also to the growth slowdown, and to adverse impacts on its banking system - not unlike the Spanish and Italian situations, though less intense. It is in this context that Sarkozy and Merkel have taken a step forward that will serve to bolster the enlargement of the European Financial Stability Fund, planned for September.