IT HAS been another momentous week in the 12-year history of the euro. The existential threat facing the currency led this week to the convening of an emergency summit of European leaders. All day Thursday they toiled in Brussels on a Franco-German draft package of measures designed to fix Greece and contain contagion. By the end of that day, some significant achievements had been agreed. As a result, the world’s second most important currency is on a sounder footing this weekend than last.
But Thursday’s emergency meeting of European leaders may not have gone far enough in addressing underlying weaknesses. By close of business yesterday, more money had fled Italian and Spanish government debt. The euro fell slightly against the dollar, and this despite US politicians continuing their own default brinkmanship in Washington. If the objective of ring-fencing the big-but-weak countries from contagion was the most important systemic objective of Thursday’s summit, the evidence after one day has been less than encouraging.
Far better were the changes that specifically relate to Ireland. Most of the new measures in the overall package were of benefit to the three countries already being bailed out – Ireland, Greece, and Portugal. For Ireland, the granting of loans at rates that could be raised in the market only by the most creditworthy states is a significant help in containing the rise of a public debt burden that threatens the solvency of the State. It should be noted that to provide highly subsidised loans to those countries who cannot borrow in private markets at any price is not costless for those offering the helping hand. This act of solidarity from our European partners is to be acknowledged and appreciated. It is the sort of enlightened self-interest that has allowed the EU over decades to create simultaneous gains for all its members, much of the time, if not always.
Almost as welcome as the granting of generous loan terms was the quiet ending of France’s insistence that the Irish rate of corporation tax be raised. The pursuit of this objective was opportunistic and has damaged Hiberno-French relations. But France’s readiness to drop the matter is proof of its commitment to place the wider European interest ahead of its own narrower objectives. Given all that has happened since November, and the number of times the tax issue has been raised but successfully rebuffed by this administration and its predecessor, there is good reason to believe now the iconic 12.5 per cent rate will not change under any circumstance.
But neither Ireland nor the euro zone is out of the woods. In their post-summit communique the leaders said that “the euro is based on sound economic fundamentals”. Would that it were. The past 18 months have shown how a minimalist currency union is less than the sum of its parts. Its weakest links, no matter how small, can undermine faith in its very existence. Sooner or later its participating states may have no choice but to complete that union, or else see it sundered.