Pioneering move signals historic moment for EU

ANALYSIS:The Government built up its credibility and waited for the right moment to push for concessions

THE 307-word communique, issued at 4.20am yesterday by euro zone leaders, is the most significant development in the euro zone crisis since an equally brief statement was issued after a similar gathering in February 2010.

The statement 2½ years ago signalled the abandonment of the no-bailout clause that was a cornerstone of the euro edifice. EU leaders ignored the bloc’s treaties and committed to rescuing Greece. Yesterday morning’s statement signalled the full Europeanisation of some national debt. It is a genuinely historic step.

It was as surprising as it is significant.

When the euro crisis flared up yet again in the spring, it brought Italy and Spain to the edge of a precipice that Europe has teetered on for far too long. Collapse of the European financial system was at hand, and with it the single currency and, most probably, the entire European integration project.

The latest flare-up led to serious talk of change – with political leaders openly discussing fiscal, banking and political unions. But in the past couple of weeks there had been a downplaying of expectations, as Germany pushed back against doing more. By this week previously high hopes had been dashed. Nobody I spoke to in Brussels in the days before the summit gave the slightest indication that major change was at hand.

Then, early yesterday morning, Europe’s much-changed power dynamic delivered. Angela Merkel no longer had her slavishly reliable ally Nicolas Sarkozy to depend on. He has been replaced by a more normal French president who believes his country’s interests extend beyond maintaining Franco-German harmony at any cost. With Spain’s banking woes weighing all of Europe down and Italy’s Mario Monti proving that he punches in EU summitry’s super-heavyweight class, Germany’s isolation was complete.

Merkel could say nein no more (there is no little irony in that Merkel was instrumental in installing Monti as Italian premier, a position he has used to isolate her).

If the trio of leaders from France, Spain and Italy encircled Merkel and pushed her to conceding more ground, the main reason yesterday’s giant step took place was to address Spain’s bank woes.

The deal reached two weeks ago to lend the Spanish government money to bail out its banks was a clear failure. The first line of yesterday’s short statement is a blunt, if implicit, acknowledgement of this: “We affirm that it is imperative to break the vicious circle between banks and sovereigns.” From Ireland’s perspective, Spain’s troubles have proved to be a great opportunity. That a specific mention of Ireland is made in the first paragraph of the short statement is very significant, particularly as other bailed-out countries were not mentioned. It caused plenty of surprise around Brussels, including to those closely involved in Ireland’s bailout. If it leads to as big a change in Ireland’s public indebtedness as it promises to do, it amounts to a diplomatic triumph for the Government.

The near giddy exhilaration of one sleep-deprived Government spokesman said much. His sense of vindication on behalf of his employer appears to be warranted.

Having built up credibility by effectively implementing the terms of its bailout and then waiting for the opportune moment to push for concessions, the Government seems to have got it just right. Although luck played a big role, quite a few people here in Brussels – Irish and non-Irish – were impressed by how Enda Kenny handled the situation.