ANALYSIS:Merkel and Sarkozy are leading the charge for a bolder and deeper form of European integration
AS THE sovereign debt crisis intensifies, the solutions mooted to assert control over it grow more radical by the day.
German chancellor Angela Merkel and French president Nicolas Sarkozy broke a taboo last week when they raised the prospect of Greece leaving the single currency.
Although Athens promptly dropped plans for a referendum on the EU-IMF bailout, the notion that the debacle will lead to a smaller euro zone lingers on.
With Italy ensnared by the crisis, the sense of alarm in European circles is growing. In three days this week, the turmoil claimed two prime ministers. The departures of Silvio Berlusconi and George Papandreou did nothing to calm markets. The tension escalates hourly.
Although well-placed euro-zone officials still insist it remains possible to avert outright disaster, they see clear potential for a “contagion event” brewing in Italy. It is with considerable trepidation that Europe – and the world – looks on at the bickering and backstabbing in Rome.
Whatever follows Berlusconi’s chaotic demise, it is clear now that the debt saga has entered a dangerous new phase. With that comes deeper reflection on the measures required to prevent a repeat of the crisis.
True, the explosive situation in the markets dominates. The firefight aside, however, there is no end of discussion on the measures required to reinforce the euro’s foundations.
This is more than mere background chatter. Both Merkel and Sarkozy are leading the charge for a bolder and deeper form of European integration.
They are unlikely to stop until they get it. The more the crisis expands, the more it threatens both leaders on their home ground, and the more they need to be seen to take decisive action.
The debate is evolving rapidly and it is one with potentially grave implications for Ireland.
Merkel’s push for treaty change, which Sarkozy supports, suggests that an appreciable transfer of powers to Europe is in the works. That means there would have to be a referendum in Ireland, one which may be unwinnable.
To say that a defeat in an EU referendum would cause a headache for Taoiseach Enda Kenny and his Government is to understate things radically. As talk of a “two-speed” Europe gathers pace, member states that don’t play along run the risk of being left out in the cold.
If Reuters is to be believed, German and French officials are already discussing measures which could lead to a slimmed- down euro zone as stragglers exit and core members of the single currency push ahead together in a more integrated system.
The report was greeted with scepticism in Brussels and Berlin, where sources involved in the campaign against the crisis said they knew of no such discussions.
A senior European source said it would be a surprise if such scenarios had not been raised at some point during countless official meetings to curtail the turmoil.
The source argued, however, that these ideas were not a feature of the political debate right now.
Nevertheless, Merkel and Sarkozy’s response to the Greek referendum suggests the concept of a smaller euro zone is no longer anathema.
Luxembourg prime minister Jean-Claude Juncker went further still by saying EU leaders were “absolutely prepared” for the possibility that Greece might leave the euro. “We would like Greece to remain a member, but we’re not saying Greece has to stay a member at all costs.”
With all that in mind, it is not difficult to conceive that officials are indeed examining the possibility of a slimmed-down euro zone.
Although there is no mechanism within the EU treaties by which a member can leave, it is clear that Merkel and Sarkozy are thinking long and hard about a radical revamp of the rulebook.
In Berlin yesterday, Merkel said the time had come for Europe to achieve a “breakthrough” in the drive to strengthen the treaties.
Meanwhile, Sarkozy said a “two-speed” model was the only way forward, with euro-zone countries moving closer together while other countries remained behind in a looser confederation.
This prompted a staunch counter-attack last night from European Commission president José Manuel Barroso, who said the idea was “absurd”.
There will be many more twists in this debate, but the prospect of a 17-country euro zone emerging from the crisis is in question now as never before.