WE MAY have a common European currency, common European policies in agriculture and industry, common European institutions . . . but the EU political and summit agenda remains uncommon, resolutely national, swept off course with great regularity by domestic squalls in member states.
In Brussels over the last two days great plans for the EU to inaugurate a new common bailout mechanism were derailed, or at least shunted back to the June summit, by a combination of Portugal’s collapsing government and likely imminent bailout requirement, our own forthcoming bank stress test reports, the rise of a Finnish Eurosceptical party, and looming German regional polls. The euro-zone crisis rumbles on.
The summit was meant to draw a line under the 16-month-old crisis by signing up to a “comprehensive package” of tougher budget discipline rules, structural economic reforms and a strengthened bailout mechanism. That economic governance package, perhaps less substantial than its proponents would like us to believe, is largely designed to give Germany’s Chancellor Angela Merkel political cover for extending her country’s financial support for the bailout fund. She will go home happy that a package has indeed been agreed and Germany has been given longer to pay, easing Dr Merkel’s options for a pre-election tax giveaway in 2013.
For Taoiseach Enda Kenny it will all have been a bit of an anticlimax. Ireland’s bailout interest rate moment of truth has been pushed back again so that it can be discussed after the stress test reports are published and inevitable extra capital needs for the banks are known.
But the emergence of the outlines of a coherent four-point negotiating strategy, in effect a national road map for the avoidance of a sovereign default and for a return to bond markets next year, is welcome. It is a carefully pitched critique of elements of the bailout deal which are undermining its purpose and sustainability, without calling it – or the Government’s resolve to honour its provisions – into question. These include the over-onerous requirement to sell off bank assets too quickly, magnifying losses and requiring heavier upfront funding; and the need for excessive reliance on short-term ECB financing.
The Government is also suggesting to partners some burden sharing, in compelling the holders of unguaranteed senior bank bonds to bear losses. And it is arguing that the mandate of the temporary European Financial Stability Facility (EFSF) bailout fund be extended to allow it to participate in bank recapitalisations as a provider of last-resort capital.
Not all involve heavy costs but nor are they all by any means palatable to our partners and yet there are, reports from capitals suggest, both an increasing understanding that the current plan is not working and a desire to see assurances of light at the end of the tunnel. The issue of a quid pro quo in a common consolidated corporate tax base has also not gone away.
Mr Kenny has a formidable, difficult agenda on his plate, but appears to be putting the best foot forward.