Concert of Europe

The following is a translation of Chapter 10 of Sophie Gherardi’s “Péchés Capitaux,” published by Grasset in 2009.

Concert of Europe

In which the four countries that are France, Germany, the United Kingdom and Italy sing an appalling cacophony together. And what ensues …

That Saturday, October 4, 2008, Europe entered the stage for the first time since the outset of the financial crisis. Nicolas Sarkozy welcomed Angela Merkel on the front steps of the Elysée Palace. Both knew that diplomacy is like opera: the tenor and the soprano must look at one another tenderly as they warble their duet, even if they can’t stand each other. “You take what Angela Merkel says, you translate it into French, and that’s exactly what I think,” the president of the Republic asserted with aplomb. So what did the German chancellor say then, she who had deliberately flouted protocol to address the press before the meeting? A few polite banalities: “I am very happy that we meet to prepare the G-8 activities and also to talk about the situations in our different countries” – followed by a sentence of pure Ruhr steel – “Each European country must assume its responsibilities at the national level.” Every country should fend for itself in saving its own banks. Period.

The French president held the exact opposite view and expounded it straight away: “A global problem requires a global response. And, in today’s world, Europe must demonstrate its intention of presenting a solution. That will reassure everyone.”

The mini-summit the papers dubbed the “G-4” for “Group of Four” opened with this dazzling display of cross-purposes. The format was entirely novel, since it brought together the four European members of the G-8, that is, Germany, Great Britain, France and Italy, plus three transnational presidents: José Manuel Barroso of the Brussels Commission, Jean-Claude Trichet of the European Central Bank and Jean-Claude Junker of the Eurogroup (euro zone). During that second half of 2008, Nicolas Sarkozy was the acting president of the European Union. The fellow who loves action got his wish. He got to manage a diplomatic crisis during the previous summer when war broke out between Georgia and Russia. And for the three weeks preceding the G-4, the international financial system had been disintegrating.

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One conviction animates Sarkozy: politics must answer, “Present!” when things go wrong. But the supreme political authority, the presidency of the United States of America, had been overruled several days before, unleashing a new wave of panic on global markets. Monday, September 29, the House of Representatives had, in a 224 to 200 vote, rejected the $700 billion Paulson plan intended to save the banks by purchasing their toxic assets. The representatives had not heeded George W. Bush’s solemn warning which forecast chaos if the plan were not adopted. The outgoing president had put all his own weight onto the scales. Knowing that that weight was no longer very significant after two terms marked by catastrophe, he convoked the two candidates to his succession, John McCain and Barack Obama, on the eve of the weekend. Both had supported him. But this sacred accord was not enough: the “no” vote had brought together a number of Democrats nauseated by the idea of giving Wall Street a blank check and a number of Republicans outraged to see the government interfering in the economy, in reversal of everything that had been proclaimed over the previous eight years. As soon as the vote was made public, the Dow Jones plunged seven percent, a fall even more severe than the one that followed Lehman Brothers’ bankruptcy two weeks before.

Sarkozy responded straightaway. If policy were to break down on the American side, it was vital that Europe speak, and, if possible, with one voice. It was out of the question to wait until the meeting scheduled for the 27th and to have to cajole Danes, Greeks, and Lithuanians one by one. Hence the idea of convoking a mini-summit of the four biggest European economies: the pretext of preparing the G-8 would do the trick; the essential was to act fast and not weigh down the discussion by inviting the “middling big” European Union members: Spain, the Netherlands, Poland. He succeeded without too much trouble in convincing Gordon Brown, Angela Merkel and Silvio Berlusconi to muster in Paris by Saturday afternoon. All were great politicians. They knew that in moments of extreme uncertainty, government leaders’ duty is to act, to be visible, to speak. Each in their own country had to confront the anxiety of depositors who were beginning to withdraw funds from their bank accounts and the real risk of a “credit crunch,” the drying up of loans that prefaces economic recession with its cortege of bankruptcies and job destruction. To reassure public opinion, each of them was ready to offer Nicolas Sarkozy the role he adores – that of international catalyst – for an afternoon.

But when they arrived at the Elysée on Saturday, October 4, the international weather had already changed. George Bush and his teams had hammered away at Congress to urgently adopt a new version of the Paulson plan, a bit more demanding for the banks, a bit more generous for over-indebted American citizens. And, during the night of October 2-3, it had passed! The financial markets breathed this news like a puff of ether: the pilots were back in the Washington plane. Suddenly, all eyes were fixed on the Elysée: would the Europeans also be able to deliver a credible plan capable of saving their financial system?

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Unfortunately, the four leaders did not turn up in that frame of mind. Sarkozy wanted political content. In his Toulon speech a week earlier, he had demanded an end to economic “dogmas.” He was targeting unlimited financial capitalism as well as at the Maastricht Treaty straightjacket with its deficit thresholds, unbridled competition and prohibition on government intervention. He wanted to have his hands free and to get his European counterparts’ agreement for that.

Gordon Brown wanted to save the financial system. He had been one of its principal artisans and his country had benefited by it more than any other. His intention was to repair the motor so it could take off again. And his plan was already prepared.

Silvio Berlusconi wanted to show the Italians he was present for an important meeting. As far as the rest was concerned, he thought the banks didn’t have much to complain about and that Italy would pull through once again.

What Angela Merkel wanted above all was to be left alone. She was in a complicated situation because she led a coalition government along with her Social-democratic adversaries and they were all up for election in less than a year. This East German scientist had never understood finance at all and she didn’t like that. If she had to sign great declarations about capitalism and morality; no problem. But there was one thing she wouldn’t agree to: that Germany should pay for the others. She arrived furious over an interview [French Finance Minister] Christine Lagarde had given three days earlier to the German press in which the French minister suggested the creation of a European Fund of 300 billion euros to assist European banks in difficulty. Angela Merkel demanded a public retraction from Nicolas Sarkozy, which she got. She had already saved the German banks several times over since summer 2007; Hypo Real Estate only a few days earlier, for 35 billion euros – the biggest rescue in German history. So then, it was every man for himself and everyone would be all right. With no fear of self-contradiction, the German chancellor expressed her displeasure over the initiative Ireland had taken the day before: guaranteeing all bank deposits for two years. Disgraceful autonomy that risked distorting competition, opined Mrs. Merkel …

So there wasn’t going to be any “European Paulson plan.” No amounts would be announced as available to rescue the banks. No collective approach. No harmonization of protections offered depositors. It was clear: Europe didn’t need a political solution.

At the opening of the stock exchanges Monday, the markets would sanction the failure of Sarkozy’s attempted initiative in their own way: in Paris the CAC 40 fell 9.04 percent, a first since its creation. And the collapse was universal, at every exchange on the planet.

Yet, as of the evening of Saturday, October 4, the German chancellor’s intransigence was already shaken. At the very instant when she was reiterating, once again, her intention of acting alone, one of her advisers passed her a note: the rescue of Hypo Real Estate had failed. It would undoubtedly be necessary to pay out 100 billion euros. And guarantee all deposits with German banks. Angela Merkel had just realized the scope of the crisis. One week later, she would finally play with the team. Europe’s opportunity to present a united front had slipped away by a scant 24 hours.

Translation: Truthout Literary Editor and French Language translator Leslie Thatcher.