Managing in a crisis, EU style

May 11, 2010

EU cube


Never let it be said that the European Union doesn’t get things done.

It may have a slightly maddening way of going about it — last-minute, late-night summits, hours and hours of sweaty, closed-door negotiation, multiple conflicting plans put forward by the likes of the Finns, the Italians and, who knows, the Estonians — and then, hey presto, like the proverbial rabbit out of a hat, at 2 in the morning, a $1 trillion deal to haul the world back from the debt-crisis abyss. All in the name of European unity.

As one Brussels policy analyst put it somewhat delphically : “The EU is not crisis resistant, but perhaps it is crisis proof.” 

But is it any way to run a region of 27 countries and 500 million people, the world’s largest trading bloc, with a gross domestic product of more than 12 trillion euros — nearly a quarter of the world’s output?

There is a difference between crisis management and getting things done only in a crisis, and the EU sometimes appears to have a tendency towards the latter. Think of the mammoth, three-day negotiations over the Nice treaty in 2000, the running battle to get the Lisbon reform treaty approved last year, and the way the  EU President Herman Van Rompuy and foreign affairs chief Catherine Ashton were appointed after backroom dealing last November.

But all of those desperate, late-night battles are as naught compared to the exhausting, nail-gnawing summitry and brinkmanship of the past five months to try to secure agreement among the 16 countries in the euro zone and the broader EU on a rescue package for Greece and then, ultimately, a plan to put a monster financial safety net under the entire EU economy.

Given the phone calls U.S. President Barack Obama made to EU leaders in the past 10 days, including twice to German Chancellor Angela Merkel, whose agreement was critical to any deal, one can only assume the United States was pretty nervous about whether any deal would be struck, and the potential consequences of failure. China was apparently on edge too. The EU’s two big global peers intensely worried about what Europe was up to.

By mid-morning Monday — barely eight hours after EU leaders had agreed the $1 trillion deal, including 500 billion euros of loan guarantees and other financial support from within the EU itself — EU President Van Rompuy and European Commission President Jose Manuel Barroso were sitting on a panel at the Brussels Economic Forum smiling broadly and all but celebrating their late-night victory. 

But the real hard work is not in getting past the finish line of a summit, with each EU leader in turn almost literally dragged to the table, finger nails scraping, to sign the agreement against their better judgment or national self-interest. It is in making sure that such a situation does not crop up in the first place.

In this case, that means ensuring that euro zone and EU member states with high budget deficits and debts, with low growth potential and rigid labour markets, take the necessary steps to overhaul their economies and make themselves more competitive, however politically difficult that may be. It’s nasty stuff and it can have unpalatable consequences — the protests and unrest in Greece are a clear case in point — but for long-term economic stability that minimises, if not completely removes, the risks of future debt crises, it’s just about the only formula.

The alternative is another Sunday/Monday night — a costly last-minute deal that neutralises the immediate threat of disaster and gives the EU some breathing space, but for how long and to what end?

“The problem here is the recurring inability in the European project to say brutal truths honestly and clearly and act on them in a realistic manner,” said Hugo Brady, an analyst at the Centre for European Reform, referring to a previous last-minute summit.

“Doing just enough to survive the political day is a habit born of EU leaders involved in summitry,” he said, adding: “Eventually the EU is going to hit a crisis that it can’t get over.”

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The limits of the European project have been reached. How much political instability will we witness before the architects accept that they need firmer foundations and must demolish and rebuild.

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