Last week European leaders got together in Brussels, once again, to try solve the euro crisis after it became clear that most commentators, citizens and especially investors remained unconvinced that the EU could contain, manage and ultimately overcome the crisis.
Was the summit the major breakthrough that everybody was hoping for, the meeting that turned the tide? Only a handful of diehard optimists would respond positively to this question. Most analysts agree that although some important steps have been made, the EU is not there yet. There will be new euro summits in the foreseeable future to regain the trust of both the financial markets and the European citizens.
The most spectacular outcome of the December summit was the row between the United Kingdom and the 26 other EU member states. In return for his country's support for a necessary treaty change to guarantee better future economic policy coordination among eurozone countries, British Prime Minister David Cameron demanded special safeguards to protect the interests of the financial sector in the City of London. Because he did not get these, he used his veto, thereby isolating the UK and forcing the other EU member states to look for an alternative solution outside the existing treaties. Much has been said about the wisdom of this radical negotiating strategy. I tend to agree with opposition Labour Party leader Ed Miliband, who said: “It is not a veto when something goes ahead without you. That's called losing. … Cameron has come back with a bad deal for Britain. Far from protecting our interests, he has left us without a voice.”
The British isolation on such an important issue has fueled speculation that the EU might be on its way to a so-called “multi-speed” Europe in which not all member states participate in all EU policies. Next to a core of countries that have opted for further integration, the EU might allow others, like the UK, to settle for less and remain out of certain fields of cooperation such as a common currency, the Schengen unrestricted travel zone or, one day, a shared foreign policy. I will come back to this model in future columns because if the EU would indeed develop in this direction, that would radically change the options for candidate states like Turkey as well.
Back to the specifics of the euro crisis and the decisions made last week. I would like to recommend everybody who is interested in a clear and balanced assessment of the summit's outcome to go the website of the European Policy Center (EPC), an influential think tank in Brussels, and read the paper written by Janis A. Emmanoulidis, senior policy analyst at the EPC.
His three main conclusions are as follows: 1. Much is still unclear about the new intergovernmental agreement that is being prepared. It could create major problems related to the existing treaties, the procedure for ratification and the role of EU institutions in the new setup. 2. There is still no convincing answer to the key question: How can austerity and growth be pursued simultaneously? Nobody would dispute the need for cuts in public debt in countries with unsustainable debt levels. But public spending cuts will have negative effects on economic growth and could contribute to prolonged and deep recessions. 3. As long as Germany is not willing to consider the possibilities of some kind of common EU stability bonds, it will be hard to convince the financial markets that eurozone members are ready and willing to tie themselves together more closely than in the past, which could increase the confidence in the future of the common currency.
According to Emmanoulidis, the present crisis is predominantly one of a lack of trust in the EU and the euro. In that sense, last week's summit sent very mixed signals to policy-makers, citizens and investors. There was some concrete progress in some areas but at the same time several sensitive decisions were postponed. His prediction: “The EU will remain in ‘crisis mode' for some time to come. Markets are not likely to calm down; confidence and trust will not return quickly. … The EU is on a long and bumpy road and it is impossible to be sure which phase of the crisis we are in. … This is a systematic crisis which threatens not only the EU's periphery but the very foundations of European integration.”
As I said: Off to the next summit!