Dithering spirit hangs over a Europe in dire need of unanimity

 

EUROPEAN DIARY:The euro zone’s way forward has to be agreed by 17 states. It is paved with danger, writes ARTHUR BEESLEY

SHOULD WE concentrate on the hapless Greek in the bunker, driving the ball deeper and deeper into the sand? Or the prim German on the 12th green as the ball comes close to the hole but rolls right past it? Or the proud Slovak whose hope for a perfect round is ruined when the ball splashes into the lake?

Last weekend, the action shifted to the International Monetary Fund annual meeting in Washington. Little of substance appeared to emerge, but a succession of dire warnings from the global powers point to an exceptionally high degree of disquiet and concern. These met with sincere promises from the Europeans to do whatever it takes to settle the malaise.

There is, by now, a ritualistic element to such talk. When Europe hasn’t decided what to do next – most of the time, unfortunately – it pledges determined, co-ordinated action to assert order over the chaos.

For political reasons, however, translating resolve into action is neither simple nor straightforward. Dithering is by far the easier course, even when it serves to amplify the problem.

This is in keeping with the bizarre logic of the crisis. The deeper into the mire we go, the more difficult it is to keep everyone on board together.

While attention centres right now on novel measures to tame the beast, decisions already taken to reinforce the bailout fund still remain to be approved in most countries. Nothing new will happen until those reforms are made, yet everyone agrees they are insufficient in their own right.

A key parliamentary vote takes place in Berlin on Thursday. But that will not be the end of the drama. In Slovakia, recalcitrant MPs could hold up the initiative for months. Following the fall of the Slovenian government, approval of the measures could be delayed until after elections.

Such are the vicissitudes of unanimity rule in Europe.

In France, they’re squabbling over collapsing bank shares. In the Netherlands, far-right chieftain Geert Wilders has forced the government he props up to seek opposition support for its euro-zone policies. Similar pressures are evident right around the euro zone. While the Kenny administration in Dublin may exude confidence, the looming budget will test its mettle severely.

All of this makes the next phase of the battle to regain control over the euro zone immensely more difficult. It is already clear that a titanic new effort is urgently required. But this will draw 17 reluctant countries and a handful of big institutions so deep into each other’s affairs as to make all that has happened in the last two years look easy.

The new response seems likely to contain three elements: an attempt at an “orderly” default by Greece; a big increase in the firepower of the euro-zone bailout fund; and a series of costly bank recapitalisations to cushion the weakest lenders from further loss of investor confidence.

Such initiatives may have the potential to finally neuter the crisis, yet they are fraught with economic and political danger.

In spite of all the claims that Greece can survive the rot without defaulting, people in the know now speak more of the need to avoid an “uncontrolled default”. At present, the chatter centres on an agreed scheme to impose a 50 per cent loss on the country’s creditors with a view to putting its debt back onto a more sustainable footing.

The big question, however, is whether that triggers another explosion on markets. Although the European Central Bank would rather not take the risk, the counter-argument runs that there can be no hope of settling the affair without admitting that Greece cannot fully repay all its debts.

At the same time, the push for cash injections into banks and wider bailout fund powers points to an effort to dim the potential for contagion in the event of a default. Yet this is toxic politically. People in wealthy countries have every reason to be hostile to bailouts; and bankers are bogeymen for taxpayers everywhere.

As the crisis worsens, however, Europe’s leaders now face an uncomfortable choice: they can try again to save the day by taking big, but unpopular decisions; or they can run the gauntlet of disaster by sallying forth in their old incremental way.

In Brussels these days, they say every week is a “crucial week” for the euro. Tomorrow morning in Strasbourg, European Commission president José Manuel Barroso will deliver his second annual “State of the Union” address. The scorecard does not read well at all.