Monti’s need for speed underpins EU summit
For those struggling to follow the highfalutin’ debate over how leaders will rescue the eurozone at Thursday’s important EU summit: take comfort. In many respects the debate is very simple: will leaders agree to take short-term measures to tackle the crisis, or will they instead limit themselves to the long-term?
That is not to say the minutiae are unimportant. At stake is nothing less than whether the single currency area becomes more like a federal state, with Brussels taking over many of the duties that national finance ministries and banking supervisors now perform.
But such moves towards banking and fiscal union take time. And time may be what the eurozone now has least of. It is on this field where Thursday’s summit battle will be joined.
Conveniently, those pushing for more short-term measures and those playing the long game fall into relatively identifiable camps. An increasingly formidable Franco-Italian alliance, backed by the International Monetary Fund and the European Commission, has been urging quick measures to fight off growing market panic.
Mario Monti, Italian prime minister, suggested using the eurozone’s €500bn rescue fund to buy bonds of “virtuous” countries under market siege to lower borrowing costs, a plan backed by his French counterpart, François Hollande.
Mr Hollande has urged using the same rescue fund to inject cash quickly into teetering Spanish banks, an idea embraced by the IMF. Olli Rehn, the European Commission’s economic supremo, has proposed commonly backed eurozone bonds, also championed by Mr Hollande and Mr Monti.
As for much of the past two years, the camp resisting quick movements is led by Berlin. For Angela Merkel, German chancellor, attempts to throw more money at struggling banks and sinking bond markets, or to mutualise debt of 17 countries with varying degrees of profligacy, is anathema – at least without more control over how that money is spent.
In that respect, the much-anticipated report by Herman Van Rompuy, European Council president, on the future of the eurozone published on Tuesday is a very German document.
Although it provides a roadmap towards mutualising sovereign debts and bank rescue schemes, none of it comes quickly. New structures – a single supervisor for EU banks, even tighter controls over national budgets – must be in place first. Proposals that urged quicker movement, included in earlier drafts of his report, were excised from the final version.
Intellectually, it makes sense to put the structural horse in front of the spending cart. After all, an entire single currency was established without such structures, and look where that got us.
But, in a panic, people panic. Many argue that, without short-term solutions, a euro may just not be left for all the well-intentioned structures to govern.
No place is this more evident than in Italy, arguably the most important country in the crisis: it is too big to bail and its demise could spell the end of the euro.
Mr Monti took office last year to great fanfare, including Ms Merkel’s imprimatur. But, for all his hard work to reform Italy, he has been rewarded with nothing but renewed jumps in borrowing costs and increasing backbiting in Berlin and Brussels about stalled Italian labour reforms.
Although Italy does not have Spain’s teetering banks, Greece’s dysfunctional economy, or Ireland’s yawning budget deficits, it is easy to forget how close to the precipice Rome reached last summer under the erratic leadership of Silvio Berlusconi. It may not be an exaggeration to say that Mr Monti has about a month to ensure it does not happen again.
After those four weeks, Italy – like much of the continent – will go into a month-long hibernation. By the time leaders return in September, Italy will be re-entering campaign season, with Mr Monti’s year-long mandate nearing its November end.
Without something to show for his efforts at this week’s summit, Mr Monti may find it impossible to get long-needed reforms through his legislature. No wonder the normally mild-mannered economist let loose yesterday. “This will not be a meeting where we will give formal approval to pre-prepared documents,” he told the Italian parliament.
So don’t sweat the small stuff. Just watch whether Mr Monti comes out of Friday’s summit smiling.