Tweet
The 17 countries of the Eurozone formally backed a new deal for fiscal management, one designed to “save the euro” but which can only help if a host of other measures fall into place, including any plan to actually boost growth on the southern periphery.
The European Council released this communique on the agreement. Because of the British veto, the countries could not sign the agreement as part of the Treaty of Lisbon. Instead, they will have to put together an international compact on fiscal matters. From the release:
At a press conference Herman Van Rompuy, President of the European Council, and José Manuel Barroso, President of the European Commission, explained the short-term measures. Up to €200 billion will be made available to the IMF, the European Financial Stability Facility (EFSF) leverage “will be rapidly deployed” and the European Stability Mechanism (ESM) should enter into force in July 2012.
For the medium and longer term, the 17 eurozone countries will conclude an international agreement. This fiscal compact, to be signed no later than March 2012, will establish a new, stronger fiscal rule, including more automatism in the excessive deficit procedure. The objective remains to incorporate these provisions into the treaties of the Union as soon as possible. The Heads of State or Government of Bulgaria, Czech Republic, Denmark, Hungary, Latvia, Lithuania, Poland, Romania and Sweden indicated the possibility to take part in this process after consulting their Parliaments where appropriate.
More in this PDF. Note that the Czech Republic, Hungary and Sweden went along with the final agreement, after voting with Britain initially. So only Britain opted out of the arrangement, and as a result the EU may fall in a bid to save the Eurozone.
Twenty years after the Maastricht Treaty, which was designed not just to integrate Europe but to contain the might of a united Germany, Berlin had effectively united Europe under its control, with Britain all but shut out.
Though not a perfect solution, because it could be seen as institutionalizing a two-speed Europe, the intergovernmental pact could be ratified much more quickly by parliaments than a full treaty amendment.
The key to all this working is two-fold. One: the enforcement mechanism. According to the draft, “The rule will contain an automatic correction mechanism that shall be triggered in the event of deviation. It will be defined by each Member State on the basis of principles proposed by the Commission. We recognise the jurisdiction of the Court of Justice to verify the transposition of this rule at national level.” But it’s unclear how that will actually manage itself, as budget percentages are often subjective.
More important is the question of growth. The communique says they are “working” toward a common economic policy. There’s no sense of what that is, beyond tight fiscal discipline. A German-style budgetary and monetary authority works for Germany, mainly because they have a cheaper euro than they should thanks to their partners. But it’s unlikely to work for the periphery, especially after austerity measures – in the midst of a recession – get put into place. Capital flows and current accounts require a rebalancing. There are only hand-waves toward that.
Felix Salmon called the summit “disastrous,” for a host of other reasons, mainly the fact that the immediate problem has not been fixed.
The fundamental problem is that there isn’t enough money to go around. The current bailout fund, the European Financial Stability Facility, is barely big enough to cope with Greece; it doesn’t have a chance of being able to bail out a big economy like Italy or Spain. So it needs to beef up: it needs to be able to borrow money from the one entity which is actually capable of printing money, the European Central Bank.
But the ECB’s president, Mario Draghi, has made it clear that’s not going to happen. Draghi is nominally Italian but in reality one of the stateless European technocratic elite: a former vice chairman and managing director of Goldman Sachs, he’s perfectly comfortable delivering Italy the bad news that he’s not going to lend her the money she needs. He’s very reluctant to lend it directly, he won’t lend it to the EFSF, and he won’t lend it to the IMF. Draghi has his instructions, and he’s sticking to them — even if doing so means the end of the euro zone as we know it.
And there’s more bad news, too. All of Europe’s hopes right now are being placed in something called the European Stability Mechanism — a permanent successor to the temporary EFSF. Since it’s permanent, the ESM is going to have to be constructed with the ability to put out fires of any conceivable size. And as such, it’s going to have to be able to borrow enormous amounts of money, and lend them on to countries which have found themselves in trouble.
But that would make the ESM, essentially, a bank. And the European leaders seem determined, today, to prevent the ESM from operating as a bank at all. Which means it will never get the firepower it needs to be taken seriously.
It’s been said that there were ten days to save the Eurozone. This is the tenth day. Whether the summit did enough to allow the Eurozone to survive will be left to history.
14 Comments
Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
Let’s see. The various European governments lend money to the IMF which lends the same money to the EFSF/ESM which in turn lends the same money back to the European governments. Sounds like a shell game to me. And, the individual governments will determine for themselves whether they are in violation of the rules unless some undefined enforcement body supercedes them. I would expect S&P to follow through, rightfully so, with their downgrade warning. The real winner in this is the United Kingdom, and Cameron, for distancing themselves from this shit pile.
All of which is to keep the bankers from
admitting they’regoing broke.Starve your way into prosperity. Sounds fine to me. /s
Three card Monte scheme
Sounds like Germany is on the way to running the table.
So Merkel has done what Hitler was not able to do in creating a United States of Germany and Merkel didn’t even have to fire a shot…clearly the pen is mightier than the sword. Good for the Brits in not joining the Banker Reich.
From the referenced Ny Times article. Nice to give up your sovereignty, eh to someone else’s court? There will be blood.
Three times in a hundred years but at least there were no guns this time around — yet.
This will be interesting when we see a redux of NAFTA.
“No, we don’t need x% of support in Parliament. This is not a treaty. This is an agreement!“
I’m surprised so many agreed to it so fast, including the Scandinavian countries. Though Sweden has been ruled by the right party for 2 elections now and Denmark only recently, and barely, went left after being ruled by their right party for a decade.
Not that it’s simply a left-right problem. There are “Euroskeptics” on both sides and the dominant parties, left and right, in Europe tend to be very much in favor of the EU. I can understand most of the other agreements, but the common currency and now giving up their fiscal sovereignty to another authority that has shown to be in favor of propping up the big banks and imposing austerity on the public, seems a bit too much.
This may, in an odd way, be good for the US. The wealthy elite may be looking over here again hoping the US can recover and pull the rest of the world out of the gutter, instead of expecting continental Europe, minus PIGS, and Scandinavia to be the new area of prosperity as it was looking like until about 6 months ago. China’s near future also does not look so hot anymore.
Even if the US does suddenly get some help in recovery, that doesn’t mean our lives will improve. When that stuff is taken away, people have to fight to get it back.
A NAFTA like 27 country free trade zone would be more than enough – the EU and the euro are not needed except by Germany’s export businesses.
Greece needs the next Greek “austerity” bill’s tax enforcement/corruption removal provisions, but next spring Greece should leave the Euro.
Perhaps the new treaty will spell out how one leaves the eurozone.
This is becoming a case of Germany taking over Europe without firing a shot, or for that matter without paying a dime of “transfer payment” to anyone.
So there is now a basic split between German banking interests, which pitch pan-Europeanism, and the British banks, which refuse to join an agreement that imposes a financial transaction tax. Capitalism inherently cannot create world unity. It inevitably splits within itself. In the last century, these splits have led to two World Wars and the present European crisis. Always, it seems, Germany and Britain are on opposite sides of the fault line.
Yep, the Treaty of Versailles in reverse – forcing Greek pensioners to pay off the stupidity of German Banks so German taxpayers can feel morally superior.
“I achieved what I set out to achieve.” —Angela Merkel.
Or possibly Hitler, around 1945. One or the other.
(Props to Cameron for doing the right thing, albeit for completely the wrong reasons. But hey, at this point I’ll take random stupidity working for us, since human decency, democracy, and economic common sense have all been murdered by the bank criminals.)