Hopes for breakthrough on Greece as EU leaders sit down to 11th summit

The Taoiseach arrives optimistic that the euro zone crisis is finally seen as a continental one

TO MEET or not to meet: that is the question. Squabbles over whether EU leaders could postpone a second Greek aid package until after the summer seemed to typify a new low.

Last week German chancellor Angela Merkel declined to attend an emergency summit “unless there was something to agree on”; European Council president Herman von Rompuy responded by calling one anyway for today.

Dr Merkel’s reticence prompted a fresh wave of bad feeling towards Berlin: French president Nicolas Sarkozy reportedly knocked Berlin’s “lack of solidarity” while politicians in Rome and Madrid complained about the “negative effect” of German insistence on private sector involvement in a Greek deal.

Berlin officials kept quiet but felt, once again, unfairly tarred as the pedantic procrastinators when they see themselves as a bulwark against what they consider to be further superficial solutions.

Another sticking-plaster summit, the Germans worried, would come unstuck over the summer months and unsettle markets. By holding out last week, Dr Merkel seems to have concentrated minds on agreeing a more ambitious package today.

She announced on Monday that she would – of course – attend, but then went about dampening expectations on Tuesday.

That is usually a sign something interesting is in the works and, yesterday, her advisers didn’t seem at all unhappy if anyone had that impression. As one well- connected adviser remarked sunnily: “This summit might just be worth it.”

Hope springs eternal that, after 10 euro zone summits in which the word “breakthrough” has lost all meaning, number 11 will be different – for all concerned.

Politicians across the continent have in recent days maintained a remarkable discipline – talking to each other on the phone rather than through the media – while their envoys, as one EU official put it, are “negotiating like never before”.

Taoiseach Enda Kenny arrives in Brussels optimistic that, finally, the euro zone crisis is no longer seen as a collection of national problems but a continental crisis.

He hopes leaders will today break the vicious circle where market pressures force summits that disappoint expectations, further increasing market pressure and triggering the next summit. “This is corrosive and damaging, and the consequences are real for the countries that find themselves at the centre of attention,” he said yesterday.

In that respect he is singing from the same hymn sheet as Merkel: where she warned against expecting a “spectacular coup”, Mr Kenny said today would not deliver a “silver bullet” solution.

With all this expectation management, what is possible? After being presented with a menu of options, leaders are likely to choose an a la carte solution (see panel).

Hopes for a quick Greece II agreement increases the likelihood of leaders moving on to any other business, where Ireland’s priorities lie: greater flexibility for the European Financial Stability Facility rescue fund, extended loan maturities and lower interest rates.

Portugal, Italy and Spain are in favour of anything that gives them breathing space. Rome is a loud proponent of Eurobonds, replacing national sovereign debt with EU debt that pools risk.

Germany remains steadfastly opposed to that. Lining up behind Berlin on that front are the Dutch, Austrians and Finns. They back Berlin’s insistence on private sector involvement in a Greek deal while the Finns are insisting on additional guarantees for further Greek loans. On Greece, France remains closer to the European Central Bank than to Germany, a point finance minister François Baroin underlined yesterday. “We do not want a credit event, that is to say, basically a restructuring of Greece’s debt,” he said.

French financial institutions have not reduced their exposure in Greece as drastically as German banks and other EU creditors. On Eurobonds, a French government spokesperson conceded yesterday that “German reticence” is an obstacle.

All this optimism over a new constructive phase in EU relations was tempered yesterday by an interesting analysis suggesting a link between the euro zone crisis and German reticence to help.

“The conviction that Germany needs to be involved in international alliances appears to be eroding gradually,” observed the reputable Allensbach Institute. “It could be that the crisis of the euro zone has much deeper consequences than generally presumed. It is possible that, with it, the axe is being taken to the roots of European Union.”