By Peter Wilding
It was the 1788 financial crisis that triggered the French revolution and the collapse of Credit Anstalt in 1931 that paved the way for Hitler. What seems increasingly certain today is that any number of monetary sticking plasters won’t prevent political reality catching up with the changed Europe that follows the storm and Britain’s place in it. According to the Daily Express, David Cameron has warned Britain might be forced to turn its back on Europe, criticising the lack of political will that could mean the single currency’s stagnation going on for years.
So we’re looking at the coming June 28-29 EU summit for a bit of Merkel leadership please. We are told that European leaders are ready to bring in new measures and ‘do everything possible’ to reach an agreement on the growth compact, says Corriere della Sera. They will also discuss bank and state debt, new EU’s investments, and the EIB’s recapitalization, as well as “so-called euro bills”, adds Handelsblatt. But it all sounds like another ‘save the euro’ summit of fluff, because into play as always comes the Merkel riddle so pithily put by Wolfgang Munchau yesterday:
“The Bundesbank said there should be no banking union until there is a fiscal union. Angela Merkel said that there should be no fiscal union until there is political union. And François Hollande said that there should be no political union until there is a banking union. They have 10 days to disentangle that knot.”
But one thing is certain in this riddle: there will be fiscal union on 1 January 2013 if by that time 12 members of the euro area have ratified it (8 so far). But the point is: who can wait that long? Voicing exasperation with the German response to the debt crisis, Robert Zoellick, the outgoing American head of the World Bank, warned of a growing rift between the Europeans in charge of the bailouts and the IMF. “The world’s waiting for the Europeans to say what they want to do,” said Zoellick. He ended by predicting a showdown between the IMF and Europe by the end of the summer in the absence of any decisive action.
“We have to work on it now if we want to avoid the collapse of the European Union. It is high time to stop procrastinating. Our grandchildren will never forgive us if we let the European project collapse”. yells Liberal leader and uber-Belgian federalist, Guy Verhofstadt, in De Tijd. Not the kind of language sadly you hear in the mother of all Parliaments. But the sentiment is the same as pictured on the front cover of the Economist where a bubble from a sinking tanker pleads “Can we turn the engines on now, Mrs Merkel?”.
In Paris, perhaps a new captain emerges? French newspapers focus on their President’s new status in the EU: Le Monde devotes its front-page editorial to the “historic responsibility” of France towards Europe under the leadership of François Hollande, following the weekend’s general elections. His mission will be to “save the euro” and initiate a new European dynamic “without arrogance and by listening to all his partners – Germany as well as the southern member states.” Libération, which makes it its top story, writes that “François Hollande is aware that he will go down in history as the French president who either saved or sank the euro, and with it the European dream.”
Europe’s leaders have nine days, says The Times today, before their next chance to “pull a rabbit out of the hat and convince the world that they have the means to end the rot that besets the euro”. But the grotesque truth is that the gulf now is too great between the northern “virtuous” bloc, led by Germany, and President Hollande’s easier-going majority.
As Larry Summers, former US Treasury Secretary, gloomily says in the FT,”Not all problems can be solved. It is not certain that the full repayment of all currently contracted sovereign debts, sustainable growth for all, and the eurozone retaining all its current members will prove feasible. The private sector is making clear that it recognises this painful reality.”
With or without a Merkel miracle between now and the new year, Europe will be a very different place at the end of this reckoning in which the key mistake was to believe that what was happening to Europe was not the euro crisis, but the crisis only of certain countries of the euro. As Larry Summers goes on to observe:
“A eurozone collapse would be a disaster that might define our era. Its prospect must focus the minds of all at the G20 summit on action. Non-Europeans must persuade Europeans that the rules change when the stakes rise. The ECB’s credibility will mean little if there is no longer a common currency.
“Setting the right precedent seemed far more important 24 hours before Lehman’s collapse than 24 hours after it. Now is the time for radical cuts in the rates charged by official creditors to European sovereigns; for a willingness to subordinate official debts; and for expansionary monetary policies in Europe that prevent deflation and encourage the growth that can create jobs and reduce debts. Only if the system is preserved can its future be debated.”
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