End of the line for the euro 2/4: Trundling towards doom
14 August 2011
Le Monde's fictional series 'The end of the euro” continues. After the German constitutional court invalidates the euro stability mechanism, the 27 member states seem resigned to the idea that one of their number will default. Charles Leesby of the Irish Times finds himself attending another midnight conference on the fate of the euro … Excerpts.
The night of May 17-18, 2012, and another extraordinary summit of the 27 European heads of state to provide first aid for the eurozone. Despite the late hour, the Justus Lipsius building, seat of the European council, was aclatter with the sound of keyboards. A few journalists were chewing on hideous sandwiches with their feet on the tables: others were busy recording their radio spots for the next day.
“SecGen briefing now in room FR 2.25.”
The spokesman's text came in at half past midnight, unusually late for the French government's secretary-general to be around: an index of the gravity of the situation. It was just after 1 in the morning when Xavier Musca arrived in room 2.25. He passed the packed rows of seats and took his place on a simple folding chair, facing the familiar faces of the small pack of journalists who followed the French president everywhere.
“I'm not going to go into great detail on the Karlsruhe decision. You know what it means as well as I do. Essentially, the judges expressed concern over the financial sovereignty of the Parliament. That means they're going to have to get MPs to vote on the fiscal consolidation measures that the Commission, the ECB and the IMF negotiated with each of the countries concerned. That's mainly a German-related topic, I think.”
He paused, then went on.
“But their second demand concerns us all. The court is worried about the 'moral hazard' that this safety net creates. It's not a new topic, but this decision means we now have to tackle it more directly than we have before. So we're pushing ahead with our efforts. Over the next few weeks, Klaus Regling, the head of the Euro stability fund, Olli Rehn, the European commissioner for economic and monetary affairs, and Mario Draghi from the ECB are all going to be working with the European Banking Authority on this. I can't go into detail. But the Council is publishing its conclusions tomorrow, and they entail the creation of this 'Kirchberg Club'.
Kirchberg, thought Leesbey: the Commission's legal kingdom and the biggest financial laundry in the world. The Kirchberg Plateau, next to the city of Luxembourg, had been covered by the sombre edifice of the European Courts of Justice since the Sixties. More recently, though, a scrum of accountants' premises and offshoots of European banks specialising in wealth management had thrown up glass and steel buildings there. The European Financial Stability Facility had also been headquartered in Kirchberg since summer 2010.
"What will the brief be for this club?" asked one journalist.
"To develop a system for restructuring and default, that will take both public and private creditors into account."
"How has the president of the ECB, Mario Draghi, been taking this?"
"You'll have to ask him. But I'm sure the ECB will be playing a constructive part in this project."
Draghi had, in fact, been furious, and hadn't bothered hiding it. The year before, his predecessor had stormed out of a supposedly secret meeting in Luxembourg when the question arose of dropping Greece from the eurozone.
Since the collapse of Lehman Brothers in September 2008, the European Commission had been supposed to be working out ways to put banks into administration without breaking the financial system. Now, three and a half years later, it was no closer to a solution.
In the press room, several hands were still in the air. One correspondent for a French daily paper, the author of a notorious blog, saw his moment.
“Ultimately, in order to protect the sovereignty of the German Parliament, you're giving it sovereignty over the budgets of other European countries. Do you think they'll swallow that? Aren't you worried that things the German constitution says are indispensable might not not fit with the terms of the Spanish and Greek and Portugese constitutions?”
“You're free to draw whatever conclusions you like.”
“Could the work of this Kirchberg Club lead to a decision that some countries should leave the eurozone, even if only temporarily? That's what some people are saying in Germany.”
“That's not the idea, no.”
It was after 2am, and the French secretary-general left as he had come, with no papers or files: just slightly larger bags under his eyes. As the assembled crowd scrambled wearily to its feet, Leesbey turned to the woman next to him.
“You think that'll get the markets to calm down?”
“Not the markets, no. But maybe the Bundestag.”