Leading article: Still far from a solution to the eurozone crisis

Signs of progress in Europe and a new leader in Greece are only steps along the way

Wednesday 20 June 2012 19:22 BST
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Hints that European leaders may be about to take active steps to ease the euro crisis have taken the edge off the panic in the bond markets. Meanwhile, the communiqué from the G20 summit in Mexico talks optimistically of euro members taking "all necessary measures". And, in Greece, Antonis Samaras has formed a workable coalition and been sworn in as Prime Minister. After weeks of turmoil, then, is Europe on a more even keel at last? Alas, no. Indeed, unless policymakers use this sliver of breathing space to make swift and substantial progress, the worst is far from over.

First, Greece. It is a matter of no small relief that Sunday's ballot did not return the leftist Alexis Tsipras, whose imprudent plan to force a renegotiation of Athens's bailout terms looked dangerously likely to pitch the country out of the euro altogether. It is also encouraging that Mr Samaras secured support from across much of the political spectrum. But although the country is no longer in limbo, the problem it represents is not solved.

Ahead of the all-important vote, EU officials suggested that the terms of the bailout might be softened, should the austerity-supporting Mr Samaras triumph. It is a pledge that must now be speedily upheld. Even that, however, will only buy a little more time. Greece's creditors are adamant that any tweaks to the deal will not include changes to either the headline deficit-reduction targets or their timetable. But as the country grinds on through the fifth consecutive year of deep recession, public pain – and protest – will not melt away simply because the voting is done. Neither will Mr Tsipras, now leader of the opposition, wind down his rabble-rousing rhetoric.

The central question about how to remedy the single currency's deep structural flaws, therefore, remains as pertinent as ever. It is here that the whispers from the G20 come in. As it stands, the proposal is to use Europe's €500bn rescue fund to drive down borrowing costs for euro countries hit by the fears over Greece. Superficially at least, the idea has some merit. Bond yields in Spain and Italy have risen unsustainably high over recent weeks. And any efforts to stop market jitters about break-up becoming a self-fulfilling prophecy are to be welcomed.

For all yesterday's dip in Spanish and Italian yields, however, the latest proposal is not the end of the story. Even if the scheme is agreed – a big "if", given Germany's silence so far – it will still address only the symptom of the eurozone's sickness, rather than the underlying causes.

The only hope is that, along with a hiatus in Greece, it might be enough to give EU leaders the time to do what they must – that is, to set out both detailed proposals for a bloc-wide banking union and also the steps towards the closer fiscal and political union of which it is a part. Such complex, far-reaching arrangements cannot, of course, be put in place overnight. But without a more convincing show of political commitment to the euro's future, and a clear plan of what will be required and when, any glimmer of optimism from recent developments will – as so often in the past – quickly evaporate.

So far, only José Manuel Barroso has offered any specifics as to what either banking or fiscal union might look like. Such leadership needs to come, not from the European Commission, but from the member states, Germany in particular. German taxpayers may not want to face the fact that the eurozone's collapse will cost them even more than keeping it together. But that does not make it any less true.

With EU finance ministers meeting tomorrow, and a full summit in Brussels next week, investors are looking for more than sticking-plasters. Only a bold statement will do.

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