Leaders hopelessly divided on fundamentals of debt crisis


EUROPEAN DIARY:A self-imposed deadline is fast approaching yet we still do not know if the bailout fund will be strengthened, writes ARTHUR BEESLEY

EU LEADERS embark on a penultimate round of talks on Friday to forge a “comprehensive” new response to the sovereign debt emergency. After months of endless chatter, their willingness to take radical action remains in question.

In cafes around Brussels, bit-players in the drama readily agree that most of the outstanding issues could be settled in a couple of hours. To expect that, however, is to be blinkered. If any of their hard talk is to be believed, Europe’s leaders are hopelessly divided on the fundamental questions.

This is what awaits taoiseach- in-waiting Enda Kenny as he prepares for his first summit as head of government. He will see there that the interest rate on Irish bailout loans is not quite the main event. Far from it.

Huge expectation surrounds the self-imposed deadline of March 25th, the point at which Europe hopes finally to close the door on the crisis. That’s only days away. Yet still we don’t know whether the euro zone bailout fund, widely held to be inadequate, will be strengthened in any appreciable way.

Impatience sets in among the official and diplomatic classes, incredulity that a problem of this magnitude has been allowed fester for so long with short-termism dominating the response. Greece blew up more than a year ago and the threat from the crisis is still potent. “At stake in the coming weeks is whether we will finally turn the corner,” says European Council president Herman Van Rompuy. He expects a positive outcome but many others are unsure.

Relative calm on restive markets does nothing to dull the creeping sense of uncertainty, with pressure on Portugal bound to intensify as the European Central Bank readies an interest rate increase. The Libyan oil shock may yet imperil other weaklings like Spain, Belgium and Italy.

Mind-numbing German squabbles are another feature. By this stage the debate in Berlin bears the hallmarks of soap opera: binary, predictable, interspersed with the odd cliff-hanger.

Imprisoned by an unforgiving electoral cycle, Angela Merkel has stalled every stage of the way. No to bailouts until the very last moment, mostly no ever since too. No to a bigger bailout fund; no to sovereign debt purchases by the fund; no to eurobonds. There are plenty other examples.

More than any other leader, Merkel sets policy in the euro zone. But her botched push to impose German-style competitiveness rules on her counterparts lacked a sure touch. The same was true in her plodding response to the plagiarism of former defence minister Karl-Theodor zu Guttenberg.

The narrative from Berlin still suggests the chancellor may be struck down at any moment for helping to underwrite indigent Greeks, other lazy southerners and the ungrateful, incompetent Irish. The benefit the rebounding German economy draws from the single currency is mentioned less often.

Yet there is more to the German debate. When Kenny went to Helsinki on Friday for talks with Merkel and other centre-right figures, incoming tánaiste Eamon Gilmore travelled to Athens to meet socialist leaders. The chieftains of the left endorsed an economic plan which included eurobonds, an idea that finds favour with German social democrat leader Frank-Walter Steinmeier.

True, the centre-right is by far the most powerful force in European politics. But it cannot be beyond the bounds of possibility that the tidal wave of European austerity will result in leftward swing in the next election round. Would the response to the crisis be any different in that case? Would it not be better to examine now what the German leader finds unthinkable? Of course it would. Yet when Eurogroup president Jean-Claude Juncker called for debate on eurobonds in December he was all but exiled to purdah. This hardly smacked of tolerance for open democratic debate.

Add into all that an entrenched unwillingness to confront the deepest problems posed by the debacle and the tension is palpable.

Following Merkel’s lead, other heads of state and government want debt restructuring after 2013 but not before then. No one answers why.

Ask a top-ranking European official, someone with serious political responsibility, and the point is simply made that it is a good question.

The big concern right now is that something billed as a decisive Big Bang turns into a flimsy thing which again undermines confidence at a dangerous moment. It has happened here before. In this scene the argument is often made that nothing is agreed until everything is agreed. The problem is that nothing is agreed.