The landscape remains fractious and EU leaders keep responding to it in a confused and piecemeal fashion, writes ARTHUR BEESLEY
AMID UNREMITTING upheaval in the euro zone, European leaders are coming under pressure from the International Monetary Fund (IMF) to intensify their effort to tame the sovereign debt crisis. There is general agreement that more must be done but little unity about the precise steps to be taken.
As finance ministers left Brussels yesterday evening after a two-day meeting, it remained unclear whether they would be called back before Christmas to plot an emergency intervention to prop up Portugal.
This is as piercing a reflection as any of the volatility in the present scenario, but the sense of foreboding doesn’t end there. Spain is under threat and pressure is piling on Belgium and Italy. Among ministers and their leaders, however, agreement is elusive as to what they do next.
Still, the brooding presence of IMF managing director Dominique Strauss-Kahn when euro area ministers gathered on Monday night says much about the distance travelled and the distance still to go.
It’s not long ago, after all, that the IMF involvement in internal euro affairs was considered anathema at the top of European bureaucracy. While that changed with the rescue of Greece last May, Strauss-Kahn is now seen to be in the vanguard of the push for a stronger and more decisive response to the crisis.
“There was a very long and rather circular argument; Strauss-Kahn set out very clearly that he regarded the overall EU effort so far as being insufficiently comprehensive and systematic,” said a diplomatic source.
Indeed, “long” and “circular” are apt descriptions of the wider debate on the multitude of interrelated questions that are confounding the European authorities.
Wedded to pressing questions about Portugal’s stability is anxiety about the adequacy of the existing bailout scheme and disharmony over new measures to boost confidence in the currency. Add disagreement over new governance rules into the bargain and bickering over the scope of mooted changes to the Lisbon Treaty and the picture that emerges is one of confusion and disorder.
The markets are in daily uproar, yet the response remains a halting one, with little enough by way of strategic vision in evidence.
“There would be some around the table who believe that the Portuguese should follow the Irish,” the diplomatic source said. Those ministers do not include Lisbon’s man, Fernando Teixeira dos Santos, but the prospects of survival seem to be decreasing.
While the IMF has been pushing for the enlargement of the existing €750 billion bailout fund, ministers adopted the line that there is no need “at this time” to increase it. This question turns on whether Portugal is rescued and whether Spain can evade that fate. Whatever the outcome, Strauss-Kahn indicated his willingness to increase the IMF’s €250 billion contribution if required.
Making the fund bigger, however, does not address the markets’ fundamental lack of confidence in heavily indebted countries. Hence the other big idea – the notion of issuing sovereign bonds with a common euro zone guarantee – comes in.
Such “E-bonds” would reduce the borrowing costs of ailing countries like Ireland because their debt would bask in the reflected glow of strong economies such as Germany. The catch, however, is that Germany’s borrowing costs would rise, as would its exposure to lax economic policies beyond its borders. The answer to that may lie in deeper policy co-ordination but Europe is divided on the scope of current proposals to do exactly that.
Cue Berlin’s curt dismissal of a fresh proposal for “E-bonds” from euro group chief Jean-Claude Juncker, Luxembourg’s long-serving prime minister. German finance minister Wolfgang Schauble was pretty adamant on that but some participants in the Brussels talks saw wriggle room in his words. Whether chancellor Angela Merkel is prepared to budge is another matter, although every step towards the Greek rescue and all that followed it was marked by German denials that any intervention was needed at all.
In many ways, the intensity of Strauss-Kahn’s demand for more is matched only by that of another Frenchman, Jean-Claude Trichet, chief of the European Central Bank (ECB). Both bring considerable clout and stature to the debate but neither has voters to deal with, a crucial consideration as any move to escalate the defence cannot be without political consequences if it is to be effective. Europe has thrown wave after wave of austerity at the problem but to no avail. The sense right now is that emergency actions by the ECB will not do the trick. Although ministers may well say that a new systemic response is needed, agreement stops there.
The problem is that the sole catalyst for “determined and co-ordinated action” is acute market tension, a dangerous thing indeed.
Arthur Beesley is Europe Correspondent