|
|
Before the summit, the Union had to deal with one massive challenge: removing the threat of insolvency hanging over at least five eurozone countries. None of the stratagems of the past 18 months has worked. The proverbial ‘big bazooka' was needed this time to convince investors that they could safely invest in the eurozone. As it turned out, we have a ‘big bazooka' in the shape of a bigger crisis reeking with the stench of political decline. Statesmanship of a quality not hitherto apparent will be needed to prevent the increasingly poisonous EU-UK relationship from crash-landing the euro. At the same time, the measures now put in place to prop up the currency will not be enough.
The eurozone is in recession and will be dragged even more deeply down by Germany's ‘fiscal compact', which tears up the Keynesian rule-book on the cyclical importance of deficit spending. The summit agreement to put more funds into the International Monetary Fund may add something (but not enough) to bail-out resources, but do not expect a bonus of BRIC-funded rescue packages when these countries are struggling with their own sliding growth rates.
The fiscal compact to be signed by the eurozone 17 and possibly nine others will worsen the EU's institutional confusion when it has never needed more simplifying. Euro Plus, the Excessive Imbalance Procedure, the European Semester and the Annual Growth Survey are an alphabet soup of surveillance, monitoring, coordination and disciplinary procedures, some of which are intergovernmental and some operating under the Community method.
Now we are to have an inter-governmental agreement for a fiscal compact by March to create a punishment squad to enforce debt and deficit rules. Separate from the existing treaties, the new arrangement will stand outside the institutions while needing their resources and facilities. This is mind-bending enough, but what little remains of investor confidence will melt away if Cameron acts on his ludicrous threat to lock the doors of the Berlaymont and Justus Lipsius against ministerial meetings of the fiscal compact countries. In reality, the compact will be served and enforced by the institutions, because all of the surveillance and some of the enforcement procedures are either already EU law or soon will be.
Overall, this analysis may seem to err on the side of gloom, given the range and severity of the measures that may soon underpin the euro. Nevertheless, the eurozone's future path is littered with high explosives. This could still be defused if the European Central Bank steps up to the plate as the eurozone's lender of last resort. Will its president, Mario Draghi, now be persuaded?
Full article (EV subscription required)