{mosads}Since the start of the Eurozone crisis in 2010, the words “last chance summit” often circulate whenever Europe’s heads of government gather. Similarly termed meetings will inevitably follow but the June 28-29 Brussels summit can potentially symbolize a new beginning for more decisive and concerted action. Direct financial support for undercapitalized banks from Europe’s debt stress funds, without adding to government debt, provides desperately needed relief to Eurozone members.
Past summits’ lack of enduring results have already damaged Europe’s credibility and undermined its foundations. With more governments requesting bailout packages, calamity has drawn nearer. Initially rooted in economic causes, the crisis has been exponentially exacerbated by continuous divisions and lack of political will. Since 2010, Europe’s leadership deficit disorder has been pushing the continental experiment toward an existential crossroads making collapse a near self-fulfilling prophecy. The stark choice is either dither and implode or make honest efforts for a collective scaling of the wall. The gradualist, step-by-step approach must be replaced by more decisive leaps.
Many insist France’s new President Francois Hollande has yet to show his full hand. He is actually struggling to find it. At home, his power is unparalleled in modern French history. His party not only controls the executive and national legislature, but nearly all of France’s regions. However, Europe cannot afford to wait for his gradual shift from campaign mode and rhetoric to the reality of power. Although his support was crucial in convincing German Chancellor Angela Merkel to agree to the new bank assistance plan, it was largely Italy and Spain leading the charge. Hollande must find his useful place on the front lines.
With Spain’s economy muddling through on life support, its prime minister’s plea for help before the summit was unequivocally clear. Mariano Rajoy spoke truth to power by publicly declaring his country’s inability to sustain current debt levels for much longer.
Among the heads of state at the Brussels meeting, Italy’s Prime Minister Mario Monti was the adult in the room. His knowledge and understanding of Europe’s institutions, and inner workings, is critical to tackling the crisis effectively. Monti’s track-record simply outweighs the combined experiences of France’s Hollande, Spain’s Rajoy and Germany’s Merkel – all career politicians.
For now, Mr. Monti has temporarily assumed leadership as the voice of reason in confronting Merkel. However, this remains tenuous as his political position at home is continuously undermined. As a technocrat lacking a power-base, he is hostage to whims of short-sighted politicians. The new bank assistance plan will bolster him, at least temporarily. However, constantly looming is the threat of snap elections before April 2013, which Italy and Europe can ill afford. Of the eurozone’s distressed economies, Italy remains the most critical link in avoiding collapse.
As for Ms. Merkel she enjoys high approval ratings at home. Her Eurozone policy generally reflects the will of her people. Approximately two-thirds of German voters vehemently oppose further bailouts. In 2013, Ms. Merkel faces national elections. She will tread carefully, particularly since her party’s recent defeat in North Rhineland-Westphalia, Germany’s largest state. Beyond the new bank assistance deal, it is difficult to envision Ms. Merkel agreeing to jointly guaranteed eurozone bonds as a form of borrowing without Eurozone fiscal consolidation. Even if accompanied by extremely drastic conditions, Germany will not surrender fiscal responsibility to anyone. From its perspective, the bond issue amounts to political posturing in order to extract further concessions from Germany in other areas. Furthermore, Germany already experienced enough hardships. It paid a considerable price for implementing structural reforms and assumed enormous generational costs for incorporating and rebuilding former East Germany. Now it should reap the benefits of its sacrifices.
In theory, this may be correct. In practice, Germany may pay a higher price should it fail to take a more pro-active stance on the Eurozone. A prevailing disconnect prevails as does a continuing state of denial concerning the crisis’s gravity and required measures to confront it.
Overall, Merkel is struggling to strike a balance between domestic constituents and external players. If Ms. Merkel does not budge further over time, she risks greater isolation from Eurozone leaders, who face enormous popular pressure at home. The chancellor accurately highlighted that the crisis has “no magic solution”. However, it needs to be managed more effectively. Thus far, Ms. Merkel has largely proved fit to lead Germany but serious questions still linger as to her suitability to guide Europe through existential crisis.
Vicenzino directs Global Strategy Project, strategic advisors in global political risk and international business.