The European Union summit which concluded yesterday achieved something that has eluded similar gatherings almost since the start of the euro crisis. It produced not only an agreement, but an agreement received positively by the markets. One explanation might be the depths to which expectations had sunk even as the national leaders gathered on Thursday evening, and there is doubtless some truth in that. But there is a more optimistic explanation: that this summit made the breakthrough that has been glimpsed, but rejected, for so long.
It is important, of course, to guard against what has been called in another context irrational exuberance. Agreeing the outlines of what must happen, and actually steering the new course, are different things. But the stumbling block, all along, has been Germany, and the abiding fear was that Chancellor Angela Merkel would remain so constrained by domestic politics and the election she faces next year that she would not bend until it was perhaps too late. As of the early hours of yesterday morning, it was clear that Germany had given crucial ground. Ms Merkel rushed home, apparently to "sell" the agreement to her parliament and public.
This should not be impossible. The German Chancellor always insisted that closer fiscal integration, with firm institutional safeguards, should come before any move to mutualise eurozone countries' debts. Enough progress appears to have been made on the first element to allow for progress on the second. The eurozone has agreed to use its bailout funds to recapitalise languishing banks, but it has also agreed that this can happen only when an "effective single supervisory mechanism is in place" involving the European Central Bank. Ms Merkel can reasonably claim that she has stuck to her principles.
It has also to be said, however, that Ms Merkel's hand was to an extent forced by recent, quite substantial, changes in the dynamic of the eurozone. These include the Yes vote in the Irish referendum on the European fiscal pact, the hair's-breadth defeat of the anti-euro party in the Greek election, and the sharp shift to the left in France in both presidential and parliamentary elections. The votes in Ireland and Greece showed that voters here believed that the eurozone had a future, while the results in France not only shifted national policy priorities away from austerity and towards the promotion of growth, but also left Germany looking isolated.
The scale of the shift towards growth, at least in rhetoric, was nowhere more apparent than in David Cameron's growth-studded account of the summit at his press conference yesterday. And while the actual difference between Europe before and after the French election may be less than the language suggests, words and tone matter – even in the harsh economic world. That national election results do make a difference at the European level might also provide some consolation to voters that the democratic deficit in Europe may have shrunk just a little.
The eurozone countries have given themselves 10 days, until 9 July, to start implementing yesterday's agreement, which suggests not only their resolve, but also the urgency of the situation. Whether they can meet this deadline will furnish the first proof – or not – that the remedy has a chance of working. But the key will be confidence which, no less than fear, has a habit of reinforcing itself. We dare to say that, for the first time in many months, the initial auguries are of hope.
For Mr Cameron, though, that hope presents a conundrum. The beginning of the end of the immediate euro crisis, if that is what we are seeing, should benefit the British economy. But greater cohesion of the eurozone banks could threaten London's primacy as a financial centre. The Prime Minister hinted yesterday that Britain could have it both ways. We will see whether this was any more than whistling in the dark.
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