How European nerve centre has become a nexus of confusion

 

EUROPEAN DIARY:Bailouts, guarantees, bonds and other fears have shifted EU focus from member states to states of flux, writes ARTHUR BEESLEY

VERBAL DISCIPLINE is of the essence as the EU confronts the sovereign debt crisis, said European Central Bank president Jean-Claude Trichet as he addressed MEPs a few days ago.

He is bang on, but his plea for “clarity, clarity, clarity” from EU leaders may be in vain. Muddled communications reflect the epic muddle they’re in.

And how. As market ructions escalate, Europe’s tentacular bureaucracy is in a fever of hyperactivity and anticipation. The frantic search for the lost chord continues. At issue yesterday was a dinner in Brussels on Sunday night at which a conclave of top-ranked officials discussed – yet again – how Europe might plot a way out of the mess.

It is a mark of Europe’s propensity for title-making – and its fractured decision-making procedures – that five presidents were in attendance.

These were: Herman Van Rompuy, of the European Council; José Manuel Barroso, of the European Commission; Jean- Claude Juncker, of the euro group of finance ministers; Trichet himself and Belgian finance minister Didier Reynders, whose country holds the EU’s rotating presidency. Economics commissioner Olli Rehn was there too.

Attempts have been made to present this meal as routine but it seems like no such thing.

The gathering took place against a backdrop of acute market tension after Ireland’s bailout failed to calm the storm.

In addition, it came as Barroso and the euro group prepared to meet International Monetary Fund managing director Dominique Strauss-Kahn. To cap it all, EU leaders are faced with crucial decisions when they meet for their final summit this year.

So something is afoot.

Expectation centres on an enlargement of the €750 billion bailout fund and the issuance of sovereign bonds with a common euro zone guarantee. Both notions are controversial and, importantly, both are opposed in Berlin. However, diplomatic sources confirm the thrust of the debate and lightly couched denials in other quarters merely add spice. “If there is no project, why is Germany opposed to it?” asks a wry Italian colleague.

Whether either proposal will fly – or will be enough to tame the crisis – is open to question. However, their emergence at this point is in keeping with the well- entrenched sequencing of the crisis. New initiatives meet a measure of relief and then a poor market reaction; the next ministerial meeting or summit thus becomes a “crunch” event; preparations for a bigger initiative are made but political divisions erupt; positions are finally aligned at the meeting.

The problem right now is that nothing done to date has been sufficient to lance the boil. It’s been this way all year. Every other day brings fresh tensions. Individuals noted for calm are nervy. Harried officials speak of three or four missed calls for every call received, of meals untaken, of weekends lost to work. The atmosphere one is of uncertainty, with plans prone to change in the final minute.

Rumours swirl. Late last week French president Nicolas Sarkozy was said to be angling for a Sunday summit in Brussels to confront the chaos. Some believed it to be incontestably true, others were less definitive but didn’t rule it out either. In the event, Sarkozy went ahead with a four-day visit to India and dined on Sunday night in New Delhi with premier Manmohan Singh.

Other presidents did the talking in Brussels yet nothing will pass in the euro zone without Sarkozy’s imprimatur and, more crucial still, that of German chancellor Angela Merkel.

As debate in Ireland turns to the terms of the draconian budget for 2011, it is openly speculated in Brussels that Europe’s financial crisis is at its most intense now since the Lehman explosion in 2008. Routine central bank meetings, normally the arcane business of specialists, assume seismic importance, while regular political engagements are imbued with grave overtones.

For all the talking, however, and all the action, fundamental questions still remain unanswered. Boiled down, these revolve around the lengths to which the European authorities are prepared go to preserve the single currency as we know it and related uncertainty around who ultimately pays for bailouts.

The latter is crucial in the Irish context because the rescue scheme as presently framed puts the entire burden on taxpayers.

A multitude of interests are at play – within member states themselves, the banks they support and the EU institutions – and the very scale of the core problem grows larger as Belgium and Italy feel the heat of crisis.

The current vogue vests hope in markets placing their faith in the multipronged “systemic” response. However national austerity programmes and ad-hoc schemes to prop up banks and member states and a stricter economic rulebook have yet to do the deed.

Investors still fear defaults because they believe the weakened euro countries to be too indebted and they distrust wealthier countries to carry the can for them. On both these fronts, the political and financial implications are huge. As a result, Europe’s leaders are struggling to develop a coherent response.