ANALYSIS:Rescuing Greece was one thing, to have to support a bigger player would be quite another, writes ARTHUR BEESLEY
THE CLEAR sense is that potential for disaster has been averted. Faced with the threat of Greek default, EU leaders finally agreed a last-resort rescue net for the heavily indebted country. In so doing, they laid the ground for deeper European economic integration. This time with vigour.
That they would reach this point at all was in doubt for days. Even as EU Commission chief José Manuel Barroso took the unusual step last weekend of making public his demand for agreement on a rescue mechanism, Berlin said “never” and Paris said “never” at the prospect of an IMF financing.
Happy with the outcome, Barroso says that European crises are characterised by two patterns of response: to move backwards; or take a leap forward. “In this case it was the second response.” True indeed, a pact made on Chancellor Angela Merkel’s terms draws everyone closer. It was she at the crucial euro group meeting who asked all other leaders if they were ready to lend to Greece if required. Notwithstanding Dutch caveats about parliamentary approval, they were.
If the logical outwork is something approaching an implicit collective guarantee to all members of the single currency, the consequence is that fresh resolve and rigour is required to prevent any repeat of the debacle.
Rescuing Greece, a euro zone minnow in comparative terms, is one thing. No one wants to contemplate similar support for a bigger player.
Thus the joint statement from euro group leaders places great emphasis on the need to improve “economic governance” in the EU, a phrase deployed in place of the expression “economic government” after Taoiseach Brian Cowen and other leaders took issue with drafts of the statement. Whatever the words, however, the net point is clear.
“The current situation demonstrates the need to strengthen and complement the existing framework to ensure fiscal sustainability in the euro zone and enhance its capacity to act in times of crisis,” the statement says.
“For the future, surveillance of economic and budgetary risks and the instruments for their prevention, including the excessive deficit procedure, must be strengthened. Moreover, we need a robust framework for crisis resolution respecting the principle of member states’ own budgetary responsibility.” But controversy still looms. Questions centre now on whether Dr Merkel pushes, as she has promised, to reopen the European treaties to reinforce supervision.
The job of formulating proposals has been farmed out to a task force chaired by European Council president Herman Van Rompuy, who has been told to explore “all options” to reinforce the legal framework. However, Van Rompuy said on Thursday night there would be no treaty change if member states didn’t bite.
At very high levels of the European bureaucracy and in many member states, there is little appetite to pursue that path. The obvious factor here is the painful, years-long process of agreeing and ratifying the Lisbon Treaty. Another is the sense that a treaty revision on economic surveillance could open the floodgates. With David Cameron’s Tories threatening to seek changes if they take power after the Westminster elections, no one in Brussels wants to invite trouble.
Still, it is widely acknowledged that the half-hearted enforcement of the euro rule book helped stir the current woes. Thus the state- ment hands a strong mandate to the European authorities to flex their policing muscle.
Although they already enjoy strong surveillance powers under the stability and growth pact, big members and small never hesitated to waive budget rules when it suited them. Dublin ranked among the offenders.
Still, the planned strengthening of economic co-ordination would be designed to prevent dangerous economic policies becoming entrenched. This could have resonance in places like Ireland, where the malign trends that finally led to crisis were apparent for years but never confronted.
Here, however, controversy is inevitable. Even if the findings of surveillance from Brussels are perceived to be on the mark, they could well be portrayed locally as overstepping the mark.
No matter what surveillance plans are set in motion, their effectiveness in fostering the economic stability will probably boil down to a simple question of political will.
Nevertheless, the result of Greek drama is that every euro zone member is now seen to be potentially on the hook for all other countries. If that does not reinforce surveillance, then nothing will. The task now is to develop something more effective than the current arrangements, cut out the wriggle room and ensure political buy-in across 16 countries with divergent economic cultures. Easy to say, difficult to do.