12 December 2011

Simon Nixon: Needed - another EU Crisis Summit

In Mr Cameron's defence, two points should be made. The first is that last week's summit was billed as the last chance to save the eurozone. Only fiscal union could open the door to wider financial solutions, including an expanded role for the European Central Bank and the creation of eurozone bonds. Yet the summit made no progress toward this goal and therefore has left a lasting solution to the bloc's predicament looking as far away as ever.

Second, Mr Cameron was not the only European leader to put domestic political concerns above the wider European interest. It was Angela Merkel's need to appease her own party in Germany that forced the rest of the eurozone down the highly precarious path of seeking a treaty change to embed new fiscal rules; it is Ms Merkel's fear for her own political position that leads her to oppose any expansion in eurozone bailout funds, an expanded role for the ECB or eurobonds. Similarly, it was Nicolas Sarkozy's determination to re-establish his Gaullist credentials ahead of next year's French presidential election that led him to reject any further handover of sovereignty to Brussels and led him to push for the new fiscal rules to be enshrined in a new inter-governmental treaty instead.

Given these conflicting agendas, it hardly surprising the summit achieved so little. Its main achievement was to require eurozone members to embed into their constitutions the same Stability and Growth Pact that so dismally failed to prevent the current mess. Sanctions for countries that break the fiscal rules are to be made slightly more—but still not completely—automatic. But thanks to Mr Cameron's veto, these new rules will now be enshrined in a new treaty of the 17 eurozone members plus up to nine of the other 10 EU members rather than via an amendment to the existing treaty. That means the European Commission and European Court of Justice may be legally excluded from policing the new rules, arguably leaving the process weaker than before, since Member States will have to take each other to court.

In the end, every country got half of what it wanted. Yet it is clear all three leaders will need to compromise if the eurozone is to escape its death spiral. Ms Merkel will eventually have to recognise that fiscal transfers and the underwriting of government debt markets is essential to restore the confidence of markets; Mr Sarkozy must accept that further transfers of sovereignty to supra-national authorities are essential to address the moral hazard implicit in a full fiscal union; and Mr Cameron must acknowledge that only a fiscal and political union built around the existing EU institutions can create conditions for a lasting solution to the euro crisis in the timescale needed. Is there scope for such a grand compromise? On the evidence of last week, probably not.

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