Prior to the summit in Brussels last week turned into a crisis of the European Union, it was meant to solve the crisis of the euro. How did score points in this primary task? The answer is: badly. What emerged from Brussels is an agreement to reduce the structural defects that failed to secure € threaten to destroy. Yes, in many cases, the drive these deficiencies make it worse. The best that can be hoped now is that the European Central Bank, the paper over the cracks, which keeps things in place until next March, the Summit. The worst thing that can realistically imagine remains bleak. And is certainly not a veto to protect David Cameron and Great Britain from the economic damage.
Last week, meeting of European leaders was to take the eighth place this year.The comprehensive package, which came out in the end, was the fourth since this January. And yet it is only a very small step forward. The analysis of the crisis in closing statement on Friday presented the same record as put Angela Merkel and Nicolas Sarkozy have in the past two years, played since Greece coiffed first admitted his budget figures. This is essentially: This crisis is the fault of some southern European countries, who have played fast and loose with their treasuries. The solution offered is largely the same, also to sort the bad guy forcing countries, their public finances, and give them some cash to keep them afloat. This is economics as a moral story, and it is continued in the current match.It's the boneheaded rules that each country must lead a balanced budget (as if not, the public sector to respond to a recession in the private sector) and is the threat of "automatic effect" for any government, the foul of the rules. Picture Tony Soprano reincarnated in Frankfurt and you're not a million miles away.
But that economic analysis of the foundation only limited importance for Greece - and no help in dealing with Spain and Ireland, the two break-ins come from housing and credit bubbles, rather than wasteful governments. And yet, even as the crisis rolled up to the borders of France and Belgium, the euro club has stuck to this story. The only thing that has changed is the size of the emergency loans from the few tens of billions to the debate a few years ago at a fundraising target of € now one trillionth Can throw European leaders as many zeros as they want and they will not sound convincing. What is now needed is a coherent plan that covers the short and the institutional and economic. In the short term, the single currency club must hope that the European Central Bank following their signals from a few days, stopping at the purchase of government bonds of other nations struggling to raise cash. But this is a very short-term solution. Voters in Bavaria, we say, not to cheer on their central bank to keep blowing up their balance sheets to Mario Monti in business.
The ECB is to act under so much pressure because it is the only meaningful inter-governmental institution that the euro zone can call their own. The result, according to a recent pamphlet from the Centre for European Reform, neatly puts it, is that Mrs. Merkel and Mr. Sarkozy is relying on rules, because they do not have institutions. At the end of the Euro zone will need to create their own continental version of the IMF - albeit with a more rational approach to fiscal policy as a body of Washington. This means that a common European treasury, with the key funding from Germany and others. But it also means setting different rules for how to manage persistent trade imbalances. At the moment, the old D-Mark block effectively a trade surplus, while southern Europe is in constant deficit. This must be reversed. Is that plausible? In economic terms, yes, politically, it is certainly much more difficult. But the alternative is a breakup of the euro.
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