Tomorrow’s meeting of Eurozone finance ministers will be the prelude to another European meeting marathon with the sole aim of getting a handle on the worsening debt crisis.
The announced bailout for Spanish banks and the Greek elections have not
succeeded in restoring calm on financial markets. To the contrary, bond
yields are still increasing and some market participants are already
speculating about a full-fledged bailout for the Spanish government. It
looks as if the Eurozone is running out of options and that stopgap
measures no longer do the trick. It is obvious that next week’s European
Summit with the scheduled fundamental discussion on the future of the
Eurozone comes anything but too early.
Despite the obvious attempt by Eurozone leaders to temper expectations
about next week’s summit, there seems to be a growing consensus that
more integration is needed to keep the Eurozone alive. However, the
exact definition of more integration or even a political union still
seems to be a matter of dispute. Judging from the proposals circulating
officially and unofficially, the new vision thing could be a combination
of burden sharing with more fiscal and political integration. Proposals
for burden sharing are, for example, a permanent liquidity or funding
facility (eg, Euro bills or Euro bonds), a banking union with a single
Eurozone bank supervision and a Eurozone bank deposit guarantee. As
regards further fiscal and political integration, ideas like a Eurozone
finance minister and an independent budgetary authority are currently
Eurozone experience tells that there can be a discrepancy between what
is discussed and what eventually sees the political light and reality.
In this respect, the German position remains crucial, as there will not
be a Eurozone solution without German consent. While the German
government wants fiscal and political integration first, before agreeing
to any idea of joint debt issuances, the French government (and other
peripheral countries) have exactly the opposite sequencing in mind.
Bringing both extreme positions together will be the challenge of the
Listening carefully to comments from the German government over recent
days and weeks sheds some light on the possible flexibility on the
German side. A single European or Eurozone bank supervision has found
more German support but a full-fledged banking union will take more
time. The same holds for common Eurobonds. A debt redemption fund and
maybe even temporary short-term Euro bills could be a gnashing German
sacrifice, but accepting Eurobonds right away still looks very unlikely.
While the German government could turn out to be more flexible than
some market participants, it still looks very determined to stick to the
principle of conditional integration for as long as possible.
Obviously, Eurozone leaders still have many issues to solve before
presenting a first draft and outlines of the vision thing. One thing
seems clear, even if Eurozone leaders agree to some new principles and
elements next week, there will neither be a banking union nor Euro bonds
on 1 July 2012. Let’s not forget: most, if not all, of the potential
elements of the vision thing require changes of the European Treaties
and these changes always require ratification by national parliaments.
Tomorrow’s meeting of Eurozone finance ministers in Luxemburg is the
kick-off of a new meeting marathon, preparing the groundwork for next
week’s European summit. Even if the summit looks very unlikely to put an
immediate end to the crisis, it could prepare the groundwork for a new
architecture of the monetary union. While this could be crucial step in a
historical perspective, it might not be enough to restore calm on
financial markets. Maybe it is enough to bring the ECB back in action.