Struggling European countries need a jolt to bring their deficits under control and inspire economic growth. Angela Merkel and Nicolas Sarkozy, the Chancellor of Germany and President of France respectively, failed to rise to the occasion during their critical summit meeting in Paris.
At a time when leadership and inspiration was called for, the two leaders emerged with old ideas that could actually inflict more damage. They want all eurozone countries to pass balanced budget amendments to their constitutions by mid-2012. It's a bit of barn-door closing – deficits in eurozone countries currently run at 4.3 per cent of GDP, by an Economist Intelligence Unit estimate. That's above the 3 per cent threshold that individual countries had to meet before they won the privilege of using the euro, so the prospect of forced balance, even in future years, seems a bit fanciful.
Such legislation would also limit countries' ability to apply stimulus measures – including the very stimulus that helped many of them in 2009. All of this makes balanced budget legislation politically untenable. The idea appears unlikely to persuade eurozone members to change their spend-thrifty ways, and it manifestly failed to shore up market confidence.
Story continues below advertisement
The leaders also resurrected an old chestnut – a financial transactions tax. This, too, would do more harm than good, primarily by hindering investment. The eurozone's problem is not excessive trading, capital flight, an economy overly dependent on finance, or currency speculation – its member countries, and its banks, simply carry too much debt.
There are better ideas out there, such as the eurobond, which would pool the risk for newly-issued European debt. Stronger sanctions could be considered for eurozone countries who put more solvent countries at risk. If France and Germany want to exercise intellectual, as well as financial, clout within the eurozone, they'll need to do better than what they proposed in Paris.