ANALYSIS:As leaders left Brussels yesterday, the depth of disunity over a range of issues was apparent
AT SEVEN summits this year EU leaders have tried to stamp out the crisis roiling the euro zone but each time their efforts have fallen short. As they left Brussels yesterday, their noisy motorcades racing through freezing streets, a profound lack of market confidence remained unresolved.
No new magic bullet had been expected, although a well-flagged agreement was reached to amend the Lisbon Treaty. The revision empowers leaders to set up a permanent bailout fund in 2013 based on formal proposals due next March. Their most pressing problem, however, centres on the inadequacy of the € 750 billion temporary rescue mechanism which is supposed to see them through 2011 and 2012.
The most overt reference to this wrenching dilemma came at the end of a joint statement by the leaders of the 16 euro countries which said “elements” of their strategy will be developed as a “comprehensive” response to any challenges.
Such words were crafted to convey the impression of action without revealing any detail of the discussion. They nevertheless amount to an implicit mandate for euro zone finance ministers to deepen their examination of new measures to contain the disruption.
That the leaders could go no further than that reflects the depth of their disunity over issues as diverse as the “eurobond” question, the enlargement of the €750 billion temporary rescue fund, debt restructuring and a clutch of other proposals to tame the disruption. This means serious political dialogue is now required.
The divisions are serious. Italian premier Silvio Berlusconi said it would take time to convince all countries to back common euro zone bonds but German chancellor Angela Merkel remains defiant. “I’d buy them right away instead of the bonds of a single country – it’s Europe that’s providing the guarantee,” Berlusconi said. “Merkel is very opposed, but many others are interested, not least because Europe need only provide the guarantees.” That’s one for 2011, although leaders anticipate breathing space at least for a few weeks. The sense in Brussels is that the markets will afford a measure of respite over the holiday period as well-paid bond traders take to the ski slopes.
This gives a leeway to Portugal, right now the most exposed single currency member. That was the way last summer, when Spanish storms were calmed. However, Ireland’s speedy descent in the autumn leaves shows there is no room for comfort.
In fairness to euro zone leaders, they recognised as much in a statement calling for action on seven fronts: fully implementing agreed rescue plans for Ireland and Greece; keeping up fiscal responsibility; stepping up growth-enhancing structural reforms; strengthening the stability and growth pact; ensuring adequate financial support for the current rescue fund; further strengthening the financial system; and fully supporting ECB actions.
This is a sweeping panorama but markets remain unconvinced. Essentially a recap of everything done to date, the only novel aspect was the implicit pledge to boost the fund if required. In the scheme of things it’s not insignificant but not significant enough either. Estonia joins the euro in January. Another long year beckons.
