Summit tension tightened by London and Berlin

ANALYSIS:EU LEADERS descend on Brussels tonight for a make-or-break summit to save the single currency. Although the broad parameters of the latest deal to calm the debt debacle are clear enough, fundamental political differences still threaten to wreck the effort.

After two years of non-stop crisis, the leaders are under pressure as never before. At this, their eighth summit of the year, they hope to eliminate all uncertainty about their determination to keep the euro whole and erase the errors made in previous plans. But there are no guarantees in this game. The risk remains that the new package, like all previous efforts to nail the emergency, will be too small and too tardy.

There are five interlinking elements to the anticipated pact: tougher enforcement of EU budget rules via treaty change; stronger bailout funds; less default risk; an aggressive new intervention by the European Central Bank; and new steps to deepen the integration of Europe’s diverse economies.

Taken together, these mutually reinforcing measures might just provide a desperately needed salve to turn the tide in the euro’s favour. Every single move, however, is fraught with political tension. As seen many times before in the saga, the competing claims of chancellors, presidents and prime ministers still stand in the way of the definitive grand bargain.

As Ireland limps down the road to rectitude, these talks bring with them clear potential for yet more woe.

Not only must Taoiseach Enda Kenny avert the threat of a referendum on treaty change. He must head off a new Franco-German push for a harmonised corporate tax base. Furthermore, special pleading on the treaty question by British premier David Cameron carries new dangers. If Cameron were to extract concessions to dim the writ of EU law in the City of London, that would be very bad news indeed for the IFSC in Dublin.

So where do we stand right now? The basic concept is that political leaders pledge to adopt binding measures to mend their sinful budgetary ways in the future, their ardent hope being that the ECB throws its cash at today’s problem. There seems no doubt that the ECB is preparing a show of force and no doubt that stricter economic oversight will become a fact of life. The riddle, however, lies in the detail.

Here we come back – yet again – to lingering doubt over Berlin’s commitment to the fray. Berlin insists it wants no truck with the back-door route to limited treaty change promoted by European Council president Herman van Rompuy, European Commission chief José Manuel Barroso and, according to a senior European source, a majority of governments.

At its simplest level, the manoeuvre in question enables EU leaders to unanimously agree stronger measures to implement the rules compelling governments to keep their deficits and debt in check without going to national ratification procedures. This plays into Kenny’s desire to avoid putting any change to a public vote.

However, close allies of German chancellor Angela Merkel dismiss the notion as a mere “trick” dreamed up in Brussels. This invited the inevitable suggestion that Europe is now in the maw of a “trick or treaty” dispute.

Oblivious to the hurdles and pitfalls, Berlin insists it will accept nothing short of full-blown treaty change with an intergovernmental convention and parliamentary ratification. Merkel wants automatic sanctions against persistent rule-breakers. That cannot be done without a fuller form of treaty change. Europe may find it impossible to spurn her, but any drawn-out process with huge political uncertainty over the outcome would hardly inspire confidence.

In higher diplomatic circles, therefore, the betting remains that the chancellor will agree to a compromise based around the immediate adoption of the fast-track, pain-free route in tandem with a more long-term move towards a deeper form of treaty change. That would postpone the evil day for the Taoiseach but his difficulties don’t end there.

Enter Cameron, an instinctively Eurosceptic prime minister whose party is baying for a Downing Street coup in Brussels. The Tory premier has drummed up the rhetoric in recent days, insisting that his acceptance of any treaty change must be backed with a return of some powers to London.He might well need it, for Britain is said to be unique in its requirement for parliamentary approval of even fast-track treaty change.

This presents a major headache for other leaders, who are especially wary of British “exceptionalism” over Europe but conscious that the failure to achieve unanimity on treaty amendments could trigger a divisive Franco-German push for a euro zone deal and a bout of squabbling over a “two-speed” EU.

It is obvious that this would do no good to the effort to persuade the euro’s doubters that a solution to the currency’s ills is within sight.

For Kenny, whose negotiating hand is weak, the question brings with it the threat that Cameron might pursue and receive special opt-outs for London from Europe’s push to intensify the regulation of the financial system.

That’s rather a nasty prospect for Dublin. Whatever about the blatant inconsistency in Britain’s defence of Europe’s single market while seeking special treatment for its financial sector, in Irish circles the fear remains that a deal-breaking Cameron will have to be appeased in some significant way.

All of these questions – and much, much more – now demand answers. For example, doubt hangs over Germany’s willingness to accept the simultaneous operation of Europe’s temporary and permanent bailout funds. What is more, the provision of ECB loans to either or both funds remains a source of rancour.

Like all the others before it, this summit has been built up as the final chance for Europe to seize the initiative from ever-restive markets. As the quest for the lost chord nears another denouement, the concern remains that another fudge will not do the deed.

With Italy in peril, Spain not far behind and the strongest European powers in danger of losing their triple-A ratings, the crisis could yet take a lethal turn. A success at the summit would radically improve Ireland’s recovery prospects but failure would darken everything.