There will be a lot to catch up on at the EU leaders' summit dinner, writes ARTHUR BEESLEYin Brussels
FOR ALL the noise over tonight’s informal dinner summit in Brussels, there is a certain unreality to the proceedings. This is an important scene in the drama, but denouement it is not.
No one can predict the outcome of the Greek election and no one really knows the true state of Spain’s ailing banks. The situation is grim enough, but precisely how grim is simply not known.
Although EU leaders still hope for the best, they cannot proceed until the uncertainty is lifted.
At the same time, the lack of clarity is weighing on the banking systems in both countries. The Greek central bank reported the loss of some €700 million in bank deposits in a single day at the height of the political turmoil last week. Spain has had to deny any deposit flight from one of the country’s weakest lenders. All of this has fuelled Armageddon-like speculation of chaos in the European banking system if panic takes hold in Athens or Madrid.
This is the fearful backdrop to the second Greek election in as many months. As weakened pro-bailout leaders face off against ascendant rejectionists, the risk remains that the Greek people will vote to repudiate the EU-IMF deal.
Thus there is plenty of cause for concern. When newly elected French president François Hollande makes his entrée into the summit chamber, he will meet colleagues browbeaten by crisis, besieged by uncertainty. He may come to see the elimination of Nicolas Sarkozy, which was never a given, as the easy part.
To the surprise of some Brussels observers, Hollande has adopted quite a forceful approach in his push for a radical new departure. In defiance of German chancellor Angela Merkel and certain other creditor countries, he wants jointly issued eurobonds and a lot more besides.
Still, there was little expectation last night that he would push for a final settlement of his contentious demand to reopen the fiscal treaty. That must come as a relief to Taoiseach Enda Kenny, who is approaching the end of a difficult referendum campaign.
Also in the mix are new powers for the European Stability Mechanism (ESM) fund to directly recapitalise banks. This may be the only way for Spain to avoid a full-blown bailout and it has obvious attractions for Ireland, yet Germany says no.
The shadow over this volatile panorama is dire talk of a Greek return to the drachma if the election winners veer off the preordained EU-IMF plan. This spells danger for everyone: political, financial and social. Insistent whispers about contingency planning in assorted European venues point to fear and trepidation.
The great irony here is that European Council president Herman Van Rompuy convened this summit because he wanted to give the leaders an opportunity to carve out the broad elements of a new growth strategy. In his invitation letter to the leaders, he hardly mentioned the brute here-and-now of the crisis: “At the very end of our dinner, I propose that we discuss recent developments in the euro zone.”
If Van Rompuy’s timetable is to stick, the starter and the main course promise to be something of a sideshow. Growth is in vogue these days, the lack of it spurring the clamour from Hollande and other leaders for more to be done.
But we already know what is in store. Van Rompuy aims to resolve divisions over new lending capacity for the European Investment Bank and a clutch of other initiatives to improve the climate for job creation.
The truth is that these are tiny things when compared with the titanic struggle over eurobonds and other “taboo” subjects such as the provision of a banking licence to the ESM. At the same time, the history of the crisis shows that German movement comes only at the moment of maximum turmoil. Merkel tends not to shift gear otherwise – and Hollande’s arrival will not change that.
Still, this summit will provide an opportunity for other leaders to take the measure of the new French president. As Spain simmers and Greek leaders return to the campaign trail, tonight’s gathering may yet prove to be the prelude to the endgame. The next scheduled summit is on June 28th, 11 days after the Greek vote.