ANALYSIS:ANOTHER WOBBLE. Germany and France have sought a second EU summit next week to break the deadlock over new plans to escalate the halting campaign against the debt crisis. The demarche raises yet more questions over Europe's power to finally surmount the turmoil.
The mood in Brussels was already gloomy before Angela Merkel and Nicolas Sarkozy concluded in a phone call on Thursday that a comprehensive deal to settle the emergency was not possible at a summit tomorrow. These are fateful days. As Europe confronts its greatest challenge in six decades of integration, it was not quite a shot in the arm.
True, political leaders do tend to harden their positions in the white heat of negotiation. Yet this looks more serious than a mere bout of inelegant positioning. If it was not, there would surely be no need to run the gauntlet of markets for the best part of a week by calling yet another high-stakes summit to finalise the bargain.
Tomorrow’s summit will be sixth since the start of year. There were seven summits last year, when Greece’s debt woes struck the euro zone like an earthquake. Europe has been behind the curve since the first throes of the tumult. It still is. Roiled by doubt and confusion, the latest agonising effort to seize the initiative is in serious trouble.
The big question all week in Brussels was whether the anticipated deal tomorrow would be big enough and bold enough to quell the doubters. In all likelihood a deal will be done eventually. Whether it can convince at all is another matter.
“We have seen in 20 months half-measures, contradictions between political leaders in Europe, one saying they have to go out, the Greeks, the others saying they have to stay in, the Greeks,” said Guy Verhofstadt, a former Belgian prime minister who leads liberal MEPs in the European Parliament.
“These half-measures have been seen by the market as always too little, too late. That has created these huge tensions inside the euro zone.”
Leave aside the nitty-gritty of the present talks and the fundamental conundrums thrown up by the debacle remain the same.
In the first phase of the financial crisis, frail banks leant on sovereign and central banks to survive. We have since become accustomed to sovereign banks themselves leaning on other sovereign and central banks. This raises profound questions about the deepening involvement of member states in each others’ affairs and the consequent seepage of sovereignty.
What is more, the scale of the problem has amplified radically. Costly life-support for countries like Ireland, Greece and Portugal is one thing. Now Spain and Italy are reliant on bond-buying by the European Central Bank to keep their borrowing costs in check.
EU leaders would not shout it from the rooftops, but this means two of the largest euro zone countries are unable right now to stand on their own. With the triple-A credit rating of France under pressure, the stakes have increased exponentially since the last EU summit in July.
Hence the growing sense of disquiet and concern in European circles – and pungent rhetoric. Increasingly, the debate over what is essentially an economic crisis takes on an existential hue. The more the crisis goes on, the more it is so.
Sarkozy warned in dire terms this week that the malaise threatens the euro’s viability and, as a result, the very concept of European unity. “Those who destroy Europe and the euro will bear responsibility for the resurgence of conflict and division in our Continent.”
It was strong stuff indeed, although many observers saw it as nothing more than a blatant attempt to jolt Dr Merkel into a compromise over the expansion of Europe’s bailout fund. This she steadfastly refuses to do, a stance which mirrors her strong reluctance to contemplate euro zone bailouts in the first instance.
Having conceded on the principle last year, the problem now is one of scale.
The further the crisis spreads the bigger the “wall of money” required to prop up the euro zone and the bigger the exposure of countries like Germany. Although the constitutional court in Karlsruhe endorsed bailouts and the Bundestag backed a swathe of rescue fund reforms, the ever-cautious chancellor is still not one to lightly sally forth with a super-sized chequebook.
For all that, the relentless waves of upheaval have still led to deeper integration than most would have foreseen at the outset of the debacle.
Although the pace of political real-time in Europe remains far too slow for markets, the system is in overdrive.
In years of navel-gazing over the Lisbon Treaty, for example, there was never any serious suggestion that the no-bailout clause would be shelved. When put to its first big test, its writ vanished soon enough.
A rescue fund for Greece quickly followed, then a temporary fund for any stricken country, then a permanent fund. The temporary fund was overhauled in July. The present ructions between France and Germany centre on yet another overhaul.
The problem Europe still faces, one which is more acute now than at any previous time in the crisis, is that the cumulative response is still not big enough. And much, much more is required every time the crisis expands.
At one level, this flows from the huge scale of the debt and competitiveness problems in the weakest European states.
At another, it reflects the tension between the grave challenges EU leaders face at a European level and the day-to-day politics on home ground.
Controversy over bailouts on the donor side does not end in Germany. Anti-bailout parties in Finland and the Netherlands changed the course of elections. Last week, Slovakian prime minister Iveta Radicova was forced to concede early elections to push bailout fund reforms through parliament.
There is no shortage of people in her country, one of the poorest euro member states, who say they should not be bailing out wealthier countries.
For the record, Eurostat figures show that household disposable income in Ireland, measured by purchasing power standards, remains well above that of Slovakia. This may be of little comfort in austerity-struck Dublin, but it is telling nonetheless.
In Brussels, meanwhile, there is no end of displeasure at the inappropriateness of the duo known as “Merkozy” dominating the policy response to the crisis.
Although the European Commission is pushing back forcefully to assert its sole right of legislative initiative, Franco-German unity remains the basic prerequisite for progress in Europe and even more so in the debt emergency.
No matter how markets respond in the short-term, its absence right now is perilous.