EUROPEAN DIARY:Pledging money to help Greece is just one sacrifice EU leaders are likely to make
EVEN IF Greek premier George Papandreou never draws down the €45 billion credit line he was promised two days ago in Brussels, stark questions raised by his country’s descent into the fiscal rough won’t go away.
Every aching step to a joint European-IMF rescue has taken the EU leaders deeper and deeper into territory few of them would enter if they had the choice. Their very reluctance to underwrite Athens – implicit in the halting progress towards support for Papandreou – says as much.
Faced with no option but to make good on their unspecific pledges of aid with a firm promise of aid, they finally stepped forward with real money and a real term-sheet on Sunday. As Papandreou confronts his many doubters in the markets, he now has a massive reserve at his disposal.
EU leaders never wanted to go down this path. Yet the markets – for Greece’s financial mess is but an opportunity for speculation – have forced their hand at every turn. For months, each scheduled meeting of political leaders or ministers has been seized on as a new deadline for decisive action.
For Papandreou’s would-be lenders, the task now is to tackle the prickly consequences of their solidarity. An easy resolution of the issues raised is not in sight; far from it indeed. The dilemma is this: how to prevent any repeat of the Greek calamity now that every euro country could conceivably be called on again to participate in another rescue? Senior European officials are at pains to stress that the Greek safety net is not a bailout. That may be true – euro group chief Jean-Claude Juncker makes the point that “the loans are repayable and contain no element of subsidy” – but only in a strict technical sense. This is a bailout in all but name, meaning the euro’s foundations must be reset.
The adoption of the bailout ban a generation ago in the Maastricht Treaty meant EU leaders were free to content themselves with a loosely-enforced set of fiscal rules within the single currency area. Burying the ban, for that is what has happened, means lassitude can no longer be forgiven. To do so would be to invite yet more trouble.
Hence the drive from the European authorities for more robust economic coordination and tougher central surveillance. This makes eminent sense, but is deeply contentious. For years, EU leaders merrily broke their own rules when it suited them. Now they must rewrite the rules, a process that will inevitably encompass a further shift of economic power towards Brussels.
German chancellor Angela Merkel wants to change the European treaties to bolster the EU’s powers to keep the finances of distressed member states in check.
The truth is that there is little appetite for that, the fear being that to do so would open the trap door for a further renegotiation of the treaty.
European Council president Herman Van Rompuy said last week that it would be “very difficult” to achieve unanimous support for that. Van Rompuy leads a taskforce charged by EU leaders with exploring “all options” to reinforce financial supervision.
Economics commissioner Olli Rehn, who is further down the tracks with a parallel review, argues that the rules can be strengthened by deploying provisions already embraced in the Lisbon treaty.
Rehn often cites Article 136 of the pact, which empowers EU governments to adopt “measures specific” to euro members “to set out economic policy guidelines for them”. National governments would have no veto in such cases to prevent the adoption of such measures.
This is wide-angle stuff – and leaves plenty scope for policy direction from the centre. Indeed, certain well-versed sources have gone so far as to suggest the EU authorities want power to set detailed guidelines for public sector pay in member states. Tricky ground certainly, although officials make the point that a draconian austerity plan forced on Greece a few weeks ago included pay guidelines.
Rehn has promised to make public his proposals before the end of June, when Spain’s EU presidency reaches its conclusion. In advance of that, he will set out his detailed thinking at an informal meeting of EU finance ministers later this week in Madrid.
Whether the ministers bite, however, is another thing. Nothing is as political as economic policy, the arena of maximum government sovereignty, and national politicians do not lightly cede power to Brussels. Still, the acceptance or otherwise of greater central oversight may well be the ultimate test of whether European leaders have learned the lessons of the Greek crisis.
Even if national leaders resent EU intrusion on their home patch, they know now that they could be asked to lend scarce money to other countries if public finances in foreign places are not kept in check. That is the logical outwork of Europe’s promise to shore up Greece. While agreement on deeper financial supervision will be hard won, Van Rompuy and Rehn could be said to be operating in a target-rich environment.
