Leading article: One step on the long road out of the euro crisis

Neither GDP growth nor even a 'big bazooka' bailout fund are enough on their own

Share
Related Topics

After much fanfare, today's EU summit will not live up to its billing after all. Rhetoric from Angela Merkel and Nicolas Sarkozy as recently as last week promised that a "comprehensive solution" to Europe's sovereign debt crisis was just days away. Now, after yet another hiccup, the much-vaunted "global package" to restore calm in the eurozone's gyrating markets will not be finalised until later in the week.

A few more days of negotiations is no cause for panic. After so many months of dithering and denial from EU politicians, any real developments are to be welcomed unreservedly. And all the signs from the first phase of the summit, last Sunday, suggest there will be genuine advances on several crucial issues, albeit slightly later than planned.

There is, finally, an acknowledgement of the fact, long accepted by the markets, that Greece cannot sustain its €350bn debts. Writedowns of anything up to 60 per cent are being negotiated, with exposed banks set to raise an extra €108bn-worth of capital to withstand the shock of the so-called "haircuts". Meanwhile, the European Financial Stability Fund is to be sufficiently expanded so that it can act as a credible backstop against contagion from Greece to other eurozone economies such as Italy and France.

So far, so good. But any suggestion that the crisis can be dealt with so easily is hopelessly premature. Even the new proposals themselves are likely to raise as many questions as they answer. Far from being a "comprehensive solution", they are, at best, a beginning.

That said, the value of a sense of coherent direction from Europe's politicians should not be underestimated. Stock markets stabilised almost immediately at the first hints of an agreement, and have remained relatively steady since. But even if there is evidence that eurozone leaders have grasped the scale of what is at stake – though, sadly, prodded into action by a chorus of international criticism – the challenges ahead are no easier to navigate.

Even if the immediate crisis can be averted, the grinding austerity faced by Greece, even with the debt writedowns, will be no easy task, either politically or economically. And the need for such public pressure on the Italian Prime Minister, Silvio Berlusconi, at last weekend's EU summit only underscores the difficulty in enforcing budget discipline elsewhere in Europe against the grain of domestic political interests. Then there is the issue of growth. What Europe needs more than anything is economic expansion, to help take up the slack from slashed public sector budgets. That means pushing ahead on such thorny issues as the expansion of the single market and efforts to boost competitiveness by cutting excess regulation.

But neither growth, nor even a "big bazooka" bailout fund, will be enough without a solution to the inconsistency at the heart of the euro project. Taken as a whole, the eurozone can more than absorb its sovereign debts. The problem is that lenders to individual governments do not believe that the bloc will stand behind its members. The cavilling of eurozone politicians has not dispelled such fears. But there is no avoiding the issue. Ultimately, the only way to save the euro is to pursue monetary union to its logical conclusion. And that means closer fiscal union.

It is difficult to overstate the implications of such proposals. David Cameron's spat with Mr Sarkozy over Britain's involvement in the now-delayed finance ministers' meeting is just the earliest hint of the shift in power that a "two-speed" Europe would entail. Europe's politicians have, rightly, been lambasted for their dilatory response to the crisis. Any decisive action this week comes not a moment too soon. But it is still only one step on a long and difficult road.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Primary teaching roles in Ipswich

£21552 - £31588 per annum: Randstad Education Cambridge: Randstad Education re...

Science teachers needed in Norwich

£21000 - £35000 per annum: Randstad Education Cambridge: Science teachers requ...

Semi Senior Accountant - Music

£30000 - £35000 per annum: Sauce Recruitment: A successful, Central London bas...

English teachers required in Lowestoft

£21000 - £35000 per annum: Randstad Education Cambridge: Qualified English tea...

Day In a Page

Read Next
A homeless person sleeps in the streets  

This is why I am sleeping rough outside the party conferences

Max J Freeman
Strikes were carried out by manned air force and navy aircraft (File photo)  

Syria air strikes: President Assad now has the enemy he always wanted – Islamist terrorism

Kim Sengupta
Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits