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

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

Recruitment Genius: Ecommerce Manager

£45000 - £55000 per annum: Recruitment Genius: An opportunity is available to ...

Recruitment Genius: Customer Service / Administrator - Spanish Speaking

£16000 - £17000 per annum: Recruitment Genius: This world leading specialist i...

Recruitment Genius: Regional Support Manager

Negotiable: Recruitment Genius: This role's responsibility also include operat...

Recruitment Genius: Field Engineer - Northern Home Counties

£27000 - £28000 per annum: Recruitment Genius: Their revenue and profit have g...

Day In a Page

Read Next
A banner supporting the NO vote in the upcoming referendum hangs from the offices of the Greek Finance Ministry on Wednesday  

Greece crisis: The Troika’s inflexibility on austerity amounts to nothing short of an attempted coup

Caroline Lucas
Chancellor George Osborne will present his post-election budget on 8th July (Getty)  

Osborne’s Budget will touch on social reform – but he’s no Lloyd George

Donald Macintyre
Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Africa on the menu: Three foodie friends want to popularise dishes from the continent

Africa on the menu

Three foodie friends want to popularise dishes from the hot new continent
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Ashes 2015: Damien Martyn - 'England are fired up again, just like in 2005...'

Damien Martyn: 'England are fired up again, just like in 2005...'

Australian veteran of that Ashes series, believes the hosts' may become unstoppable if they win the first Test
Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

Twins have a mountain to climb during Tour of duty

Yates brothers will target the steepest sections in bid to win a stage in France
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy