The eurozone crisis had its day in the sun last week with the “emergency” summit in Brussels. Against a backdrop of rising uncertainty and market speculation about the credit worthiness of Spain and Italy, and with Greece within weeks of bankruptcy, the summit gave Europe’s leaders the chance to burnish their credentials as crisis managers.
Unfortunately, European Council summits are treated like a 24-hour photo opportunity and political ego trip, so – in typically grandiose fashion – the draft communiqué released by the Council talked about the creation of a “Marshall plan for Europe”. Back on planet Earth, this was greeted initially as a success, but then with suspicion as the technical details of the deal were very thin.
The big media winner was Nicolas Sarkozy who, in his customary dramatic style, flew to Berlin on the eve of the summit to hammer out a deal with Angela Merkel. David Cameron was, as usual, conspicuous by his absence. When it comes to EU summits, Conservative ministers keep a very low profile and are treated like a potentially troublesome relative.
Less talked about is the role of the “quiet man” of EU politics, European Council president Herman Van Rompuy. He has been unfairly criticised in the British press – mainly, it seems, because he is Belgian and has the surname Van Rompuy – but the truth is that he is perfect for the world of compromise and behind closed doors deal-making of the EU.
The substance of the Merkel and Sarkozy deal is that it will extend all loans to Greece, Ireland and Portugal from the European Financial Stability Facility from 7.5 years to at least 15 years, while the interest rate will be reduced to 3.5 per cent from between 6-7 per cent. The EFSF can also offer “precautionary credit lines” to eurozone countries which are struggling to borrow, in an effort to stop them requiring a bailout, and will be able to buy up their sovereign debt.
Meanwhile, the banks have agreed to swap their existing loans for new bonds that will not mature for 30 years. Private investors currently hold 150 billion euro worth of Greek bonds, and with as many as 90 per cent of these investors expected to participate, as much as 135 billion euro could be rolled over by banks buying new 30-year bonds.
On the interest rate levels, which the Party of European Socialists has long criticised as cripplingly high, and the new EFSF powers, the German government belatedly climbed down, as it has done at every stage of the debt crisis. Ironically, a popular view in Brussels is that the biggest victim of the debt crisis will be Chancellor Merkel. Germany may be Europe’s wealthiest country, but Germans are becoming increasingly unhappy at being told they must pay for the debt crisis, especially as they were repeatedly promised that this would never happen.
Although the eurozone summit was better than most expected, one of its greatest successes was in managing yet another fudge – temporarily alleviating the Greek crisis but leaving the fundamental problems facing the eurozone completely untouched. The eurozone continues to be a currency union of inter-dependent economies that lacks economic union. Second, while the changes to the loan structure and new powers to the EFSF have de facto created a eurozone debt facility and Eurobonds, the fund doesn’t have the cash to back this up.
So we should prepare ourselves for the inevitable “emergency” summit within the next year where closer fiscal and economic integration are finally put on the agenda.
A cynic might be forgiven for thinking that “emergency’ EU summits are used as a means to create more “emergency” summits. But while they give the press something to write about and the chance for politicians to preen, it’s unlikely that Greek Prime Minister George Papandreou wants to return to Brussels any time soon.
