As Europe faces into a third successive year of upheaval, the solution is as elusive as ever. A quick fix seems unlikely in the short run, writes ARTHUR BEESLEY
BACK TO the grind in Brussels, recrimination and finger-wagging in Westminster. As diplomats pick up the pieces in the wake of an underwhelming summit deal to settle the debt debacle, the big question remains as to whether EU leaders have it within them to shake off the turmoil.
The meeting on Thursday and Friday was billed as an opportunity to save the euro, eliminate doubt about the political response to the crisis and take a quantum leap forward into a new era of tighter fiscal oversight. On many fronts, the EU’s leadership raised more queries than answers.
From the outset of Greek meltdown two years ago, it has been clear that the crisis would fundamentally change the political dynamic within the euro zone. Now the dynamic outside has been changed as well. David Cameron arrived in Downing Street last year promising to avoid some kind of a “bust-up” over Europe. He got one in the end, a vicious one at that, and the ripples will spread far and wide.
The arrangement cobbled together in the early hours of Friday morning left many in the official world flabbergasted. Not only did European leaders fail to deliver a decisive blow for the single currency – they made a grave problem much, much trickier by embarking on a new institutional debate over the relationship between an intergovernmental treaty operating outside EU law to police budget rules set down in EU law.
If the keenest wonks in Brussels take sublime pleasure in the intellectual challenge posed by it all, the rest of Europe and the wider world still await a solution to the crisis that actually works. Instead, we get unending dispute and division and the powerful angling for more power amid competing claims about the nature of the world we now inhabit. A crippling lack of coherence is palpable.
Despite finding some positive signals in the latest communique from EU leaders, analysts see plenty of reason to fret.
Janis Emmanouilidis of the European Policy Centre think-tank cites tension on three fronts. “First, recent polls indicate that a vast majority of citizens in both stronger and weaker EU countries have lost confidence in the ‘European project’ – and some elites seem to share this judgment,” he writes in a note on the summit.
“Second, the increasing distrust between EU capitals, between different groupings (‘ins’ vs ‘outs’; ‘big’ vs ‘small’; ‘lenders’ vs ‘creditors’ etc), and between Brussels institutions and (some) national capitals. Third, the inability to strike the right balance between austerity and growth, between the undisputed necessity to reduce deficits/debts and the need to effectively counter the increasing economic divergences between EU countries.” This is to say nothing of downbeat perceptions in the eyes of credit rating agencies. “It seems that a ‘comprehensive solution’ to the current crisis is not on offer,” said Fitch Ratings.
“This summit demonstrated strong political support for the euro, and that its members are putting in place the institutional and policy framework for a more viable euro zone and ultimately greater fiscal union.
“But taking the gradualist approach imposes additional economic and financial costs compared with an immediate comprehensive solution. It means the crisis will continue at varying levels of intensity throughout 2012 and probably beyond, until the region is able to sustain broad economic recovery.”
Fitch foresees a “significant” downturn first. “The euro zone faces intense market pressure, which is triggering loss of business and consumer confidence, and weak industrial activity and retail sales,” it said.
If this is hardly a picture to inspire confidence, other rating agents see reason to expect more of the same dilly-dallying until such time as Germany feels the white heat of contagion. “Time is running out and action is needed on both sides of the equation, on the fiscal and monetary side,” said Jean-Michel Six, chief European economist with Standard Poor’s.
“There is probably yet another shock required before everyone in Europe reads from the same page, for instance a major German bank experiencing difficulties in the market. Then there would be a recognition that everyone is on the same boat and even German institutions can be affected by this contagion,” he told a forum in Tel Aviv.
A quick fix to the crisis seems unlikely in the short run. As Europe faces into a third successive year of upheaval, the solution is as elusive as ever.
A couple of weeks have passed since Mario Draghi, chief of the European Central Bank, raised expectations of a big new intervention by saying “other things might follow” the adoption of a new fiscal compact. Europe breathed something close to a sigh of relief. Soon enough, however, Draghi declared himself puzzled by this response.
It was an apt illustration of the confusion in which the euro zone finds itself. There will be more of this.