Brussels throws gauntlet down to Berlin
The European Commission leapt off the fence yesterday proposing many of the policies – a bank deposit guarantee fund, longer for Spain to make the cuts demanded of it and allowing the euro zone rescue fund to lend to banks direct (though there were some mixed messages on that) – that would buy a considerable period of time to move towards its ultimate goal: the sort of fiscal union that would make the euro zone a credible bloc much harder for the markets to attack.
The proposals would go a long way to removing Spain from the firing line, and suggests Brussels at least has decided it now urgently needs to shore the country up. But Germany opposition to all three still appears to be steadfast.
Time to dust off the golden rule of this crisis – dramatic decisions are taken only when the bloc is staring right into the abyss. We’re not quite there yet, though not far off, so there has to be a chance of something seismic resulting from the end-June EU summit which follows June 17 Greek elections. The leaders of Germany, France, Italy and Spain meet in between, just after a G20 summit which will presumably press Angela Merkel hard too. As European Commission President Barroso said yesterday, speed and flexibility will be of the essence although at least some of what is being discussed would require time-consuming treaty change.
There’s absolutely no guarantee that Germany’s Merkel will bend but, as at the G8 summit earlier this month, she will cut a fairly lonely figure if she does not. Merkel, Italy’s Mario Monti and France’s Francois Hollande talked to President Obama last night with Washington’s pressure for more decisive action presumably restated. Obama has despatched one of his top Treasury officials to European capitals this week to deliver the same message.
Pressure is also coming from the ECB, which is calling for euro zone deposit guarantees and a bank resolution mechanism while remaining very cool to Spanish calls to revive its bond-buying programme. ECB chief Draghi has told the European Parliament this morning that a credible mechanism for recapitalising euro zone banks and improving oversight is needed urgently.
Greek polls basically show the election is too tight to call with a real chance that the anti-bailout SYRIZA could prevail.
The Irish, who vote in a referendum today on the bloc’s fiscal treaty, look less of a threat to the euro zone with polls pointing firmly to a ‘yes’ vote. The reverse would set off another round of jitters though the damage would be greater to Ireland itself as only 12 of the 17 euro zone nations are required to rafity the act to bring it into force. A ‘no’ would push Ireland to the margins and threaten its access to future bailout funds. Results will not be known until Friday.