(Hugo Dixon is Editor-at-Large, Reuters News. The opinions expressed are his own.)
By Hugo Dixon
LONDON, March 31 (Reuters Breakingviews) - Both continental European euro-enthusiasts and British Conservatives received a boost last week when the German and UK finance ministers called for a rewrite of the European Union's treaties. The goal, outlined by Wolfgang Schaeuble and George Osborne, is to kill two birds with one stone: shore up the euro zone and keep Britain in the EU.
The entente is significant. German-UK relations have certainly warmed since December 2011, when London tried to block one of Berlin's pet projects - a treaty that restricted borrowing by euro zone countries - unless it was given guarantees to protect the City of London.
But have the two countries really found a formula that simultaneously solves the EU's two main problems? There are reasons to be sceptical.
Schaeuble and Osborne wrote in a joint article in the Financial Times that the euro zone needs a common fiscal and economic policy. Meanwhile, as it integrates further, those EU countries that don't use the single currency such as Britain shouldn't be put at a "systematic disadvantage."
What this meant was that "future EU reform and treaty change must include reform of the governance framework to put euro area integration on a sound legal basis, and guarantee fairness for those EU countries inside the single market but outside the single currency."
Some observers see this declaration as the basis of grand bargain. After all, Germany is the EU's most powerful country. What Berlin wants, Berlin gets.
But is this really so?
Take Schaeuble's desire for a new euro zone governance framework. During the crisis years, three important new entities have been or are being created: the European Stability Mechanism, the bloc's bailout fund; the single supervisory mechanism, under the aegis of the European Central Bank, for overseeing banks; and the single resolution mechanism, for shutting down bust lenders.
Meanwhile, the zone's finance ministers meet regularly in the Eurogroup - which, in due course, will have its own full-time president. On top of that, Germany got its stricter rules to control countries' borrowings.
The conventional wisdom is that monetary union requires fiscal union - and that what the euro zone has done so far doesn't amount to fiscal union. But what else is needed?
Here views diverge. Germany wants more discipline, giving either a euro zone finance minister or an EU budget commissioner the power to veto national budgets. Other countries, especially in the periphery, want some form of "debt mutualisation," under which euro zone members would guarantee each others' borrowings.
These different visions will be hard to reconcile. Underwriting foreign countries' debts is anathema to many Germans, while giving a supranational tsar the ability to overturn budgets will be deeply unpopular in most other nations.
Can't Berlin just ram its vision through, as it has done so often during the crisis? Probably not. After all, the existential threat posed by a possible euro breakup has receded, meaning other countries are no longer so afraid that they have to dance to Germany's tune.
What's more, the rise of euroscepticism in many countries - something which May's European Parliament elections are likely to underline - means it will be hard to push through a new treaty even if the political elites want one. Remember that EU treaty changes require approval by all 28 members and, in many countries, there will have to be referenda. France's Francois Hollande, for one, seems hostile to such a vote, fearing he would lose it given the rise of the far-right National Front.
If there was an urgent need for a treaty change, all countries might still fall into line. But there isn't. The euro zone still has problems. But most can be solved by boosting competitiveness - and that doesn't require a treaty.
What about Britain? Doesn't David Cameron need to secure treaty changes in order to win the "In/Out referendum" he has promised to hold in 2017?
Quite apart from the fact that Cameron may not be prime minister in 2017, the UK can significantly advance its interests within the EU without revamping the treaties. The economic priorities are: completing the single market; securing free trade deals with the United States, Japan and China; cutting unnecessary red tape; and building a modern financial system based more on capital markets than banks. The latter reform is needed because banks are deleveraging and won't be able to finance growth on their own.
The UK, of course, has other interests, which can only be secured via treaty change. It would, for example, be good to strengthen the principle of subsidiarity - under which the EU is only supposed to take action if it can do so more effectively than a nation state can alone. That would help stop meddling by Brussels.
What's more, if the euro zone does go for full fiscal union, Britain and other countries such as Denmark that don't use the euro will be in a bind. The euro countries might then form a common position on all important matters and so dictate to the others how the single market operates. In such a scenario, it will be vital to guarantee fairness for those not in the single currency, as Schaeuble and Osborne say.
But this is not the only, or even the most likely, scenario. Cameron shouldn't place all his bets on treaty change.
Hugo Dixon's new book - The In/Out Question: Why Britain Should Stay in the EU and Fight to Make it Better - is published this week as a Kindle Single. Available at http://amzn.to/1p6kCSG
- Wolfgang Schaeuble and George Osborne have called for the European Union treaties to be redrafted to shore up the euro zone and keep Britain in Europe.
- "The crisis has shown that the euro zone needs a common fiscal and economic policy with corresponding improved governance," the German and UK finance ministers wrote in a joint article in the Financial Times.
- "But as the euro area continues to integrate, it is important that countries outside the euro area are not at a systematic disadvantage in the EU. So future EU reform and treaty change must include reform of the governance framework to put euro area integration on a sound legal basis, and guarantee fairness for those EU countries inside the single market but outside the single currency."
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(Editing by Chris Hughes and Sarah Bailey)