03 November 2011

John Wyles: In uncharted territory

All European crises bring changes in their wake. This one has already set the Union on a very different path since Greece first brushed with bankruptcy. The new destination is unclear, but here are six potentially influential markers:

1. The pro-economic growth lobby has been cowed into submission. The EU's extreme emphasis on restrictive budget and debt management is shrinking growth prospects.  The eurozone cannot hold if huge differences in economic performance continue.

2. Leadership and priority-setting has shifted (from the European Commission) to the European Central Bank (ECB), to the eurozone summit and to Berlin and Paris. Neither Barroso nor his new vice-president, Olli Rehn, the European commissioner for economic and monetary affairs, has the muscle and the political skills to be a big-time player in the game of policy strategy.

3. The Franco-German axis is now the German-French axis. Increasingly, Berlin is using its political and economic superiority to force France into a subsidiary role. President Nicolas Sarkozy flies into Germany for crisis talks as a supplicant, while key policies are written in Berlin, not Paris.

4. The world needs a successful rescue of the euro. Such is the degree of international economic interdependence that the financial stability of the eurozone and the existence of the euro itself is far more central to the well-being of the global economy than many had realised.

5. Public political humiliation lies in store for countries requiring a lifeline because of severe debt and deficit problems.

6. German terror of relaxing anti-inflation policies is blocking badly needed changes to the ECB's functions and statutes. Promoting growth has to be part of its mission.

The landscape is constantly changing and the Union's journey towards safe ground remains chillingly perilous. When history is in the making, happy outcomes are never guaranteed. But they can be secured by skill, effort, optimism and luck. We need large helpings of all these to see us through the many months of stress and tension that lie ahead.

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