Even if Greeks do not leave, EU must escape fiscal mire

OPINION:Paris and Berlin are at odds as a shaky edifice must somehow solidify its crumbling union

EUROPE’S LEADERS face momentous decisions in the coming days as they strive to shore up the battered single currency. At issue is whether they can settle a fundamentalist schism over their response to the expanding debt crisis. The very viability of the euro is at stake.

This is no overstatement. The Greek election tomorrow could lead the country back to the drachma. The week-old bailout of Spain’s banks is teetering, threatening a long-delayed effort to contain the storm. Italy already feels the simmering heat of contagion.

This spells danger everywhere yet consensus is as elusive as ever. Even if Europe is slouching towards a “banking union” and a “fiscal union”, conceptions differ radically as to what these notions actually mean in practice. It is in this arena, however, that the next phase of the battle may well be fought.

There cannot be a leader in Europe who would not agree that more needs to be done quickly, but they still cannot agree on what. Each of the big players thinks they have the right stuff and that the naysayers are plain wrong. Exhaustion and fear are in the air, frustration too that the rescue strategy is not working, and there is annoyance to be back again in the dreaded cul de sac of woe.

Some weary top-level figures thought a €1 billion European Central Bank cash injection into the financial system would provide fully three years of respite and calm. It lasted only months.

In previous moments of alarm, Europe just about managed at the very last minute to leap further into a novel world of sovereign bailouts and intrusive external supervision. None of this did the trick, however. As the situation worsens, the sense grows and grows that the ultimate moment of reckoning may soon be upon us. Spain might need a full-blown bailout, overstretching the rescue funds. The threat of anything similar for Italy could be fatal.

But the divisions are deepening. The struggle to salvage the common currency seems to have assumed a quasi-religious aspect, as if the resolution of a severe economic and financial conundrum boils down to matters of faith eventually. When debt mutualisation is dismissed in Berlin, the impression formed is that this is a position forged in both politics and morals.

There is support for such thinking in The Hague, Helsinki and Vienna. In Paris, Rome and other capitals, the argument goes that this is a blinkered outlook which utterly fails to grasp the true dimension of the problem.