Guest post. Translated from the French by Tim Gupwell
By rejecting the quartet’s plan, (which has, moreover, already been watered-down) before the summit has even been held, the German deputy foreign affairs minister, Michael Link has placed himself in the avant-garde of all those opposing any attempt at a compromise. The “iron chancellor’s” hard-line approach has not changed: political union first, but not yet, and possibly the rest after that. There is a risk that the only thing left of the elaborate construction, already proposed only in its broadest outlines (even for that of the banking union component) is the transfer of Eurozone banking supervision to the ECB. There remains only one way out: an application of the German strategy which is based on a debt reduction of the public sector in priority.
For the summit Angela Merkel is rejecting all the ‘magic formulas’ and seeking to stick to the “strong message” sent out by the growth plan which was decided in Rome and which was immediately dismissed as insignificant. François Hollande will have to content himself with this to make a good impression. “It’s about finding lasting solutions, not quick and easy ones”, she added. “Structural reforms will be at the top of the agenda”, she proclaimed to the Bundestag, as if there still remained any doubts; even if it means making use of the quartet’s document for her own ends.
Nonetheless this strategy continues to be undermined. The Greeks are trying to rebuild a governmental team decapitated by medical problems, while forecasts now concede that their GDP will contract by -6.7% this year; Mariano Rajoy has warned that the Spanish state will not be able to finance itself at current market rates for much longer, this in an ever deepening recession; rumours that Mario Monti is likely to resign continue to make the rounds, while Silvio Berlusconi is putting in an appearance behind the scenes once again.
The ongoing stand-off which Angela Merkel has committed herself to will only be limited by the depletion in the resources of the EFSF and the future ESM, which will have to intervene unremittingly once Italy’s turn comes to topple into the abyss. Unless the European leaders come to their senses beforehand, as she hopes, prolonging the collective death pangs. Rarely has such a determination to promote one’s own downfall been seen before.
Mariano Rajoy expressed his support for a “more tightly knit fiscal and banking union”, but it is just not enough. In an attempt to rescue the quartet’s project, José Manuel Barroso outlined the possibility of a redrafted fiscal pact in order to incorporate the new constrictive measures which he proposes. It is still not enough. Mario Monti is willing to work late into Sunday night if it will help things progress. Time will tell.
The Greek Government has got off to a bad start in its attempt to obtain a renegotiation of the second bail-out plan, due to the mandate which presided over its constitution. Cyprus, which has also requested a European aid package for its banks (which will have to be extended to the country, as is the case for Spain), whilst simultaneously preparing for an influx of Syrian refugees, is – rather symbolically – preparing to assume the presidency of the European Union. Mario Monti can start writing his letter, just in case…. Because the rates for an Italian six-month bond issue climbed today, just one day before a fresh issue of five and ten year debt.
Those who want the windows in the bus to be closed are always right. It’s the rules.