With Spanish Prime Minister Mariano Rajoy calling for a new euro zone fiscal authority to manage the bloc’s finances and send markets a signal that EU leaders mean business about defending the euro, it is clear that the push towards fiscal union, led by Germany, is gathering momentum. Germany has also conceded that Spain should get an extra year to make the spending cuts demanded of it, suggesting it is aware that the crisis is lapping at its door again.
But economic union, even if agreed (it runs contrary to generations of French political culture to relinquish that amount of national sovereignty) will take many months even years to put into practice, given the complex treaty changes that will be required.
The hope is that a strong signal of intent at the end-June EU summit will calm markets and encourage the European Central Bank to hold the fort in the meantime. The former looks like a somewhat heroic hope. On the latter? Well, the ECB has made it quite clear it wants government to sort out the mess but has also consistently proved itself to be the only institution capable of moving quickly enough when the crisis turns acute. So it will almost certainly intervene again if the bloc reaches the point of calamity, though that is more likely to take the form of an interest rate cut and a third round of three-year money creation than a serious revival of its bond-buying programme.
The governmental measures that could make a real difference – a banking union with a bloc-wide deposit guarantee scheme and common euro zone bonds – look a long way off although pressure is seriously mounting for the former with ECB chief Mario Draghi and Italian premier Mario Monti, among others, hollering for it. It is likely Germany would only be in favour after a lot of progress had been made on the economic union front. And no one has yet explained where the vast funds needed to underpin euro zone bank deposits and create a structure to deal with failing banks would come from.
But the mere fact that such dramatic measures are being discussed marks a step change in the bloc’s crisis management. Is it quick enough?
The ECB’s monthly policy meeting looms large over the week. It will produce updated economic forecasts likely to show the euro zone will contract more deeply than it had thought this year. That could serve as a hint that it could move to shore the currency bloc up.