Situation in euro zone as stark as ever and decision time is nigh
EUROPEAN DIARY:Europe must settle a plethora of other niggling questions before a deal is done
AS EUROPE’S leaders return to the fray after the summer holiday, the immediate focus of their attention is on the European Central Bank and its phlegmatic chief Mario Draghi.
Whether he can deliver a convincing plan to shore up Spain and Italy when the bank’s governing council meets today in Frankfurt may well set the tone for another busy round of politicking that could finally determine the fate of Greece and that of the single currency at large.
Europe has been in nervy make-or-break mode for the best part of three years but the sense these days in Brussels is that the time for definitive decisions is nigh. We will know soon whether that comes true. Notwithstanding the abundant political difficulties presented by the debacle, the frustration at the failure to make appreciable progress is palpable.
For Ireland, expectation centres on the pledge from EU leaders to review the bank debt burden.
The ardent hope in Dublin is that a deal will be done by the end of next month, but Europe must settle a plethora of other niggling questions first. All the better if that gives Taoiseach Enda Kenny and Tánaiste Eamon Gilmore some leeway to settle growing, internecine coalition tensions. In advance of a difficult European negotiation, loose talk from restive troops about an early election cannot inspire confidence on the other side of the table.
Top priority in Brussels right now is the push for clarity over the ECB’s role and agreement on onerous new terms for the second Greek bailout. Then there is a looming ruling from the German constitutional court on the legality of the ESM permanent bailout fund, the Dutch election next week, the economic slowdown generally and ponderous background talks on yet another institutional revamp for the euro zone.
It’s a huge agenda but the authorities believe there is no realistic alternative to muddling through the mire.
Simply put, the unspoken strategy is for the ECB to provide enough comfort to Spain and Italy to give prime ministers Mariano Rajoy and Mario Monti more headroom to steer through increasingly contentious and politically damaging fiscal reforms.
At the same time, the aim is to isolate the Greek problem. The dangers inherent in any return to the drachma mean it’s anyone’s guess as to whether that can really be done. The basic idea is the second bailout will be cast with the implicit proviso that the entire deal will be scrapped – and with it Greece’s membership of the euro – if there is any more slippage.
