It was said of one 19th-century British politician that he never missed a chance to let slip an opportunity.
Although European leaders were quick to define last month's euro summit of 2011 as the day European leaders faced the crisis down, they know better now.
Last month's summit was yet another European chance of recovery thrown away, a turning point at which history failed to turn.
And now no number of weekend phone calls can solve what is a financial, macroeconomic and fiscal crisis rolled into one, which needs a radical restructuring of both Europe's banks and the euro, and will almost certainly require intervention by the G2O and the International Monetary Fund.
Although Chancellor Merkel and President Sarkozy brokered a July Brussels deal that kept Greece liquid, they could not break free from the four "no-go areas", the politically imposed constraints that thwart growth. Accepting there could be "no bailout, no default, no devaluation and no more money", economic necessity was sacrificed to what was politically expedient.
However, their wrong conclusions last month arose, from three years of wrong analysis. For, since the early days of the crisis, it has suited European leaders to believe that theirs is a fiscal crisis confined to the weaker states, and so they have presented their problem in a one-dimensional form – profligacy in the periphery demanding austerity, and if that fails, even more austerity.
But Europe's problems can only be understood in three dimensions: not just as a fiscal crisis but as a pan- European banking crisis – which started as, and continues to be, one of massive unfunded bank liabilities – and as a cross-continent crisis of low growth, in part the result of the euro's deflationary bias in a crisis.
Together, and in lethal combination, these three problems threaten a tragic roll call, year after year, of millions of European citizens unnecessarily condemned to unemployment and a wasted decade.
I remember European leaders sitting round the table at the first euro group meeting, expressing surprise when I said European banks were far more highly leveraged than America's and far more at risk than any other countries'. Months into the crisis, they could not contemplate what we now know to be true: that half the sub-prime toxic assets had landed in European banks, and that, far more dependent on short-term market finance than America, European banks have huge funding gaps that can be carried over only for so long and which now require radical recapitalisation
And even now they find it difficult to understand how the economic policy of the euro area chokes off growth, impedes recovery and leaves Europe ill-equipped for global competition.
But, having started from the wrong analysis, leaders have been making exactly the same kind of mistaken judgements we have seen in the US. There, political constraints – no to economic stimulus, no to higher taxes, no to public investment, and no to changes in entitlements – have also trumped an agenda for recovery, choking off yet another potential engine of world growth.
At moments of crisis, statesmen and women have to lead markets and display irresistible resolve. The best example is when, pushing uphill against the constraints of the day, Roosevelt's New Deal of the 1930s turned orthodoxy on its head and pursued stimulus instead of austerity. In April 2009, at the London G20 summit, the world had to underpin its economy by the boldest and most dramatic of measures.
And, at its moment of truth last month, Europe needed to summon up the power to restructure its ailing banks radically, to co-ordinate monetary and fiscal policy, and make fundamental reforms to the euro. Specifically, the Brussels summit needed to accept the inevitability of fiscal transfers; trigger their precautionary facility, including for Italy and Spain; and, as a minimum, expand the European stability fund, underpinning it with a backstop facility far bigger than its current size.
Yet not one of these items even reached the agenda. Action, however, that is deferred at one point of crisis will mean even more radical action is required at the next juncture. What might have satisfied markets a few weeks ago – a Brady-style bailout for Greece – will not now be sufficient to end Europe's economic agony as interest-rate spreads, debt-servicing costs rise and as the pan-European stresses in the banks come to the surface. Already, both the creditor and debtor countries (the former through bank stress and the latter through both bank and sovereign stress) are being sucked in.
Of course, in the short term, the European Central Bank (ECB) can use its secondary market purchase programme while it considers how to be the long-term lender of last resort, but it will rightly ask what fiscal guarantee is in place for it to perform this role. And the funding needs of Italy, Ireland, Greece, Portugal, Spain and Belgium just until 2014 could be around four or five times as much as the current 450bn euro backstop facility. This could require, at a minimum, credit enhancements to help restore market access at bearable levels, or cover of up to 2trn euros. On top of this, bank restructuring may cost as much as 200bn euros in new capital, perhaps even 300bn, requiring an overall backstop – partly euro-member-state-financed, partly IMF – equivalent to a quarter of eurozone GDP.
Then we will also have to create a European debt facility (perhaps for up to 60 per cent of national GDPs) and, as a sequel to that, greater fiscal and monetary co-ordination. This will, in turn, mean fiscal transfers on the model of – if nothing yet akin to – the scale of the US.
But, even if all these stabilisation measures are agreed, Europe's growth will remain anaemic. And deficits and unemployment, far from falling, according to plan, may remain too high.
So there is a final inescapable economic dimension – what I call the "'global Europe' plan" – a determination that Europe stops looking inwards and looks outwards to export markets in the eight fastest-growing economies (India, China, Brazil, Russia, Indonesia, Turkey, Korea and Mexico). Today, only 7. 5 per cent of Europe's exports go to these fast-rising economies that will create 70 per cent of the world's growth.
The key to achieving sustained growth is not only a repositioning of Europe from consumption-led growth to export-led growth, but radical capital-product and labour-market reforms to equip the euro area for global competition. And a G20 agreement with the US and Asia to co-ordinate a higher path for global growth. None of this was discussed in any detail in Brussels.
Yet, without that agenda for growth, even the most painful austerity is unlikely to prevent the social tragedy of high unemployment. European leaders, who assumed for 10 years that the stability pact was all they needed to cope with a crisis, will find that they also have to face up to unprecedented constitutional change.
One of the reasons I opposed Britain joining the euro was that the euro had no crisis-prevention or crisis-resolution mechanism and no line of accountability when things went wrong.
Today, because of the unanimity required in the voting structure of the new European stabilisation fund, European leaders are still seeking agreement on funding its first phase long after a second, bigger, phase is overdue; they remain unsure who is responsible in a crisis, not least because of their ambiguous relationship with the independent ECB; and few, even now, are able to contemplate the massive constitutional issues raised by fiscal integration.
But every time the big questions are avoided, and every time the outcome is a patchwork compromise, the next crisis gets ever closer and threatens even more danger. Without action on the lines I suggest, no one can assume that Europe's historic strength is enough to prevent the most punishing of future outcomes.
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