More cracks in the eurozone despite likely deal for Greece
Europe's leaders will do their best to put on a show of unity as early as Monday when they announce that they stand ready to help Greece recover from its financial disaster.
But the deal is just a thin veneer over permanent disagreements about how to run the European Union, and Brussels is about to embark on another round of damaging internal debate which will further distance it from the bloc's 500 million citizens.
Greece is the weakest but not the only member of the 16-country eurozone in deep trouble. It must borrow over 50 billion euros on the international markets this year or else it could go bust. The other countries that use the euro, led by Germany and France, are likely to say that their private banks will guarantee to help meet those financing needs should willing investors turn out to be in short supply. That, allied to a massive round of spending cuts inside Greece designed to reduce the budget deficit, should be enough to calm markets and stabilise the situation.
It won't stop Greeks from rioting, however. Just as in the UK, US and everywhere else, ordinary workers can't see why they have to swallow pay cuts, tax rises and cuts in services as a result of incompetent politicians and mendacious bankers. Greece's socialist government, recently elected, is suffering from internal dissent at the price to be paid for outside help. The deficit is more than four times higher than eurozone rules allow, but reducing it could be a dangerous process in a country plagued by social unrest and which was under military rule as recently as the 1970s.
As for the rest of the eurozone and the European Union, the big beasts of the continent - the UK, France and Germany - have never seen eye to eye on the level of economic oversight and political interference they would countenance from Brussels. It was hoped that the passage of the Lisbon Treaty, the reforms of the EU's rules and institutions just enacted after much pain, would still that debate and end internal wrangling for a decade.
Instead, Greece's problems, and those yet to be played out in full in Spain, Portugal, Ireland and elsewhere, have exposed the messy and inadequate compromises agreed for the co-ordination of vastly disparate economies. It hasn't worked; a new framework is required.
Britain, out of the eurozone and likely to avoid a direct role in the Greek solution, cannot hide from the renewed debate on institutional reform. The large percentage of the population opposed even to membership of the EU will again put pressure on a newly-elected (and probably Conservative) government to hold a referendum on the subject.
The Conservative leadership, which thought it had buried the subject for a while at least, will do its best to hide. The European Commission too will try to enact reforms that it says do not require a new treaty between member states, and hence could shorten the arguments. These will focus on more rigorous economic oversight and checking of statistics (Greece lied about the state of its finances for years), and a push for the restructuring of member economies. Brussels, under instruction from EU eurozone finance ministers, will draft "a European framework for co-ordinated assistance" that will be combined with proposals for "reinforced economic policy co-ordination". That will encounter resistance from France, which resists any greater interference from federal economic mandarins, and probably in Germany's constitutional court, which may take the view that even these changes breach the country's constitution.
In any case, such piecemeal reforms will not be good enough for Germany, the continent's largest economy, its most solvent and the most at risk of being asked to keep paying for its partners' bad housekeeping. Angela Merkel, the chancellor, has seen her standing dip dramatically in spite of recently winning an election - and this is in part a reflection of the deep anger among ordinary Germans at having to pay for Greece's shortcomings.
Wolfgang Shauble, her finance minister, has been the most vociferous so far in suggesting a totally new deal for the euro, and Mrs Merkel has said that a new treaty might be required.
The wheelchair-bound Mr Schauble, 67, is an unlikely revolutionary. He is the Protestant son of a conservative politician who worked first as a chartered accountant and later survived an assassination attempt by a psychotic opponent almost 20 years ago during an election rally.
But his proposal for a European Monetary Fund went off like a small bomb beneath the facade of unity that has protected the European single currency since it came into existence in January 1999. He said he would "present proposals soon" for a new eurozone institution with "comparable powers of intervention" to the Washington-based International Monetary Fund.
"We're not planning an institution that would compete with the IMF, but for the internal stability of the eurozone, we need an institution that has the experience and power of the IMF," Mr Schauble said. He admitted what everyone had acknowledged thus far only in private, that the EMF was needed because monetary union was "still incomplete".
Over the following days, Mr Schauble and other supporters of the plan slowly elaborated on what it would mean - and with each new detail came a new objection. For a country to be aided by a new EMF, Mr Schauble declared, "Strict conditions and a prohibitive price tag must be attached so that aid is only drawn in the case of emergencies that present a threat to the financial stability of the whole euro area."
More followed. "This effect should be further reinforced by excluding the country concerned from the decision-making process; aid must be the last resort."
The suggestion that Athens should have no involvement in setting the conditions for any EMF loan to Greece was hardly music to the Greek government's ears - nor to any other eurozone member that might run into trouble. But in the ultimate expression of German anger at the threat to the euro from the behaviour of countries like Greece, Mr Schauble went even further.
Not only would another Greece be stripped of economic and fiscal sovereignty, should it come cap in hand, but it could face the ultimate humiliation of being kicked out of the euro club. "Should a eurozone member ultimately find itself unable to consolidate its budgets or restore its competitiveness, this country should, as a last resort, exit the monetary union while being able to remain a member of the EU," he said.
So 17 years after the Treaty of Maastricht which created Economic and Monetary Union, Germany was thinking the unthinkable: how to chuck countries out.
France has so far been cool on the idea of an EMF. Paris has long supported greater control over policy on the euro by heads of government, giving politicians more opportunity to meddle with the currency and interest rates, but that is not the same as beefing up the powers and oversight of the European Central Bank - effectively the successor to the German Bundesbank.
After the Greek deal is announced then, it surely will not be long before France weighs in on Mr Schauble's plan, and then inevitably David Cameron, if he is British prime minister, and others will be forced to take a view.
Olli Rehn, the formerly footballing Finn who is the EU's economic and monetary affairs commissioner, said this weekend: "The euro is not only a monetary arrangement but a core political project of the European Union... in that sense we are at a crossroads." But it has been reached just as Europe's leaders were hoping to park the car and enjoy the scenery.
Posts
