ANALYSIS:THE BRUSSELS summit was billed as a final opportunity for Europe's bedraggled leaders to assert control over the debt crisis. The new pact, however, marks yet another partial response. Whether it will fly seems in doubt.
With fudge heaped upon fudge, the latest dead-of-night compromise doesn’t resolve anxiety about the scale of the response and raises a host of tricky new questions over the new legal artifice to be created in lieu of the now-abandoned push for amendments to the Lisbon Treaty.
As never before it opens the prospect of a “two-speed” Europe with the euro zone and its allies moving faster down the road to integration while Britain, still one of the foremost EU powers, mopes on the sidelines.
The crisis was always going to lead to more thoroughgoing economic governance. That it would lead the EU down two different tracks was not clear at the outset. This is a sea change in the way Europe works, reversing in a flash the principle that the relentless decades-long integration of Europe’s diverse economies always proceeds (albeit at different speeds) in the same general direction.
This carries dangers for Taoiseach Enda Kenny. In the new world, the State could find itself playing by different rules to its biggest trading partner. New strictures on Ireland might not apply to the neighbouring island, leading to disadvantage in the competition for investment. That is in prospect now and there seems little hope of reversing it.
If EU leaders’ objective was to eliminate all uncertainty about their determination to see the single currency through the mire, this seems unlikely to do it. The fundamental problem remains that there simply isn’t enough money around to see all weakened countries through the storm. If German chancellor Angela Merkel is alive to the conundrum, she still insists on going the long way about solving it.
The great hope remains that the European Central Bank will step forward with its flame-thrower, but its chief Mario Draghi has been playing down expectation and the bank is instinctively minimalist when it comes to bond market interventions.
It follows that there was no little gloom in Brussels yesterday as jaded officials and diplomats took stock of the artifice conjured up by the leaders of Europe in the pre-dawn hours. In such circles there was bafflement and despair at the outcome and perhaps a little fear, the prime concern being the continued shortfall in the euro zone “firewall”.
To the astonishment of certain warlords in the battle to save the euro, some leaders arrived in Brussels saying they had no idea that a boost to the bailout funds was in play. As euro zone countries line up to refinance as much as €120 billion in debt in the first three months of the new year, risk and tensions mount.
To recap: market analysts and many governments believe Europe might need as much as €2 trillion to see off doubt about Italy, Spain and any other country that might find itself in distress. At their last summit, however, EU leaders set a target of €1 trillion for the effort to leverage the EFSF temporary rescue fund.
This initiative foundered. With private and sovereign investors wary of the scheme, at best no more than €600 billion might be available via leveraging. But there are doubts here too. Amid lingering uncertainty over the chaotic political response to the crisis, private investors warn that they might pull their money.
Thus attention turned weeks ago the European Stability Mechanism, as the permanent successor to the EFSF will be known. While the leaders decided early yesterday to bring forward its introduction by one year, the fund’s lending capacity will remain static at €500 billion.
There is concern at the highest levels in the euro zone that this will not be enough, the uncertainty amplified by Germany’s insistence the ESM should not receive a banking licence that would enable it to borrow more freely.
Yes, Europe has agreed to provide an additional €200 billion in bilateral loans to the International Monetary Fund to escalate its involvement in the euro zone. But that effort, too, anticipates that cash-rich countries such as China and Brazil might provide aid. They may have suggested in vague terms that they might do so but their cold response to the EFSF leveraging initiative points to a distinct lack of confidence in Europe.
All of that is to say nothing of the extraordinary show-down over treaty change with British prime minister David Cameron. While this nasty episode seems likely to isolate Cameron and his country, it presents challenge after challenge to EU leaders to find an intergovernmental formula that satisfies all sides in the political debate and keeps within the writ of EU law.
No one other than Merkel ever suggested that the solution to the crisis lay in treaty change. But if her aim was to provide clarity to markets and to Germans sceptical about their country’s ever- deepening role as the EU’s paymaster general, she has not got that yet. There will be tougher monitoring of debts, deficits and economic policy generally.
Cameron’s unyielding demand for a quid pro quo prompted a decision to construct a new body of law outside the ambit of EU law to police budget rules laid down in EU law. Like wearing shorts in snow, it’s not exactly sensible. Yet that is the mind-bending solution as presented.
The initiative raised the inevitable question as to who would police the measures set down in the new treaty. The law could be bent to allow the European Commission carry out the task, but the unanimous support of 27 member states is required for that and Mr Cameron is unwilling.
Hence speculation yesterday on the creation of a special Commission-like structure to conduct a much more intrusive form of economic surveillance than seen before. Quite how that could work is entirely unclear.
So here we are again. The crisis imperils the single currency, money used daily by more than 300 million people, yet Brussels goes back to another round of institutional debate over who does what. It is difficult to fathom.
