LARGE EXPECTATIONS surround this week’s European Council meeting, which will consider what further initiatives should be taken to protect the euro and extend its defences. The build-up is fully justified, whether it comes from political leaders, financial markets, international observers or ordinary citizens. They all worry about the single currency’s survival, what is required to shore it up and the dangerous consequences of failure.
They are entitled to expect a coherent political and economic road map from the summit to illuminate the steps that will be taken and reflects a common political will.
Most of the elements needed have been identified in the intense public debates surrounding the financial, debt and euro zone crises. The single currency’s incomplete design was cruelly exposed when Greece’s sovereign debt problems spilled over into the euro zone in 2010, forcing the creation of an ad hoc debt firewall which will be institutionalised in the European Stability Mechanism. Ireland, Portugal and Spain have availed of it, Cyprus is now seeking it, with Italy widely canvassed as the potential next client. But the fund is not big enough to deal with all of them. Alongside that the fiscal compact treaty imposes much tougher conditions and Brussels oversight on state budgets.
Deeper economic and political integration is now required to protect the euro, as is clearly recognised in the report “Towards a Genuine Economic and Monetary Union” presented by Herman Van Rumpoy. It proposes more integrated financial, budgetary and economic policy frameworks and renewed democratic legitimacy and accountability. A banking union involving deposit insurance, recapitalisation and resolution of banking failures with a common authority and based on bank contributions not taxpayer funds is suggested; so are mutualising part of sovereign debt in the euro zone and Brussels intervention to prevent budgetary overruns. The proposals come from the principal institutional leaders in the EU, based on a developing political alliance between France, Italy and Spain among the large states. Creditor states led by Germany oppose some or all of these measures in principle.
These disagreements expose the deep political divisions at play within and between EU and euro zone members. They urgently require resolution. A road map outlining how they will be tackled must also address the deep economic problems facing the member states. A new growth agenda has emerged reflecting different political alignments. It includes better use of structural funds and possible project investment bonds, but further measures to stimulate growth are rightly expected from the summit. The sheer pace of change and international pressure continually outreaches such agreements and highlights outstanding problems. This is the nature of such crises. A road map and timetable setting out clear steps towards supporting the euro, creating sustainable growth and flagging the path towards closer political union is capable of bringing the EU abreast of these expectations, but only if the political will is there.