22 July 2011
It could be said that it was about time. On 21 July, the leaders of euro zone governments agreed on a plan that is supposed to provide a financial escape route for Greece and give the EU the tools it needs to cope with a further intensification of the crisis. It is tempting to say “at last,” because for more than a year, they have been arguing over the size of the package, the mechanisms it will use, and the issue of who is to contribute.
Many experts, and political leaders believe that if the newly announced pledge to provide Greece with preventive credit lines and buy up its bonds had come at the beginning of the crisis, the country would have fared much better, while Ireland and Portugal might have been able to avoid having to submit to the tutelage of the EU and the IMF. However, we should bear in mind a number of observations when considering the result of the extraordinary summit.
The first of these is that the rescue was slow in coming; However, we should not underestimate the time took to convince all of the political, economic and financial players of the need to announce to what amounts to partial default by Greece. Such a decision could not be taken lightly. At the same time, it is important to point out that following the announcement of €110 billion for Greece and the creation of a €750 billion bailout fund more than a year ago, virtually everyone was convinced that the euro had been saved. So it is too early to conclude that single currency is out of difficulty.
The second observation is that if Germany has now become the de facto boss of Europe, this is a reflection on its ability to obstruct common decisions rather than its ability to act as a leader. Finally, Nicolas Sarkozy had to intervene to push for the compromise that resulted in a solution. If the enlargement of the EU has relativised the importance of the Franco-German axis, this latest decision is proof that it will remain indispensable in the light of a combination of circumstances: the UK and Poland, which are not in the eurozone, have not been able to participate in critically important discussions, and the two other major heavyweights in the eurozone, Italy and Spain, have been economically and politically weakened to the point where they are no longer able to influence decisions.
Thirdly, the solution to the crisis has resulted in further step towards federalism, which will be welcomed by the many commentators who called for such a move. Angela Merkel and Nicolas Sarkozy have already announced that they will present a series of proposals on European economic governance at the end of the summer.
In analysing the impact of the impact of the summit decision, it would be wrong to solely focus on European institutions. Europe is right to consolidate the structures underlying the single currency and to reduce imbalances between countries, but more importantly, it also has to redefine its economic model. The only way, after all, to resolve the problem of debt is to create more wealth. The only way to justify austerity packages is to offer the prospect of a brighter future, in particular to the young people who have suffered so much in the crisis.
Finally, in a context where more and more Europeans are losing interest in politics, voters are not going to rally to any project that is solely institutional. A federalist new deal may be a step forward, but what we really need is a new deal for high-technology industries, renewable energy, and research and training.
Translated from the French by Mark McGovern