Eurozone crisis: Crunch time for EU

2012-06-27 12:03


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Brussels - European Union leaders gather on Thursday for a two-day summit that global powers say must signal an end to piecemeal efforts to solve the eurozone crisis.

Under intense pressure from markets and G20 partners, not to mention new bailout requests from Spain and Cyprus, European Union heads of state and government meet in Brussels from late Thursday afternoon.

This will be the umpteenth "crisis summit" since the debt saga kicked in early in 2010, though without Greece's new premier Antonis Samaras, who is ill.

The stakes are high against a backdrop of voter backlash over austerity and warnings that political sovereignty must be surrendered to redress faults in the design of a currency shared by very different economies and cultures.

Months ago already, EU president Herman Van Rompuy said in off-the-cuff remarks that the eurozone stood "backs to the wall", "at the edge of a cliff" and "with a knife at its throat".

The pressures are affecting EU states big and small.

Roadmap for integration

Slovenia is on a slippery slope, while Italy, Europe's third-largest economy, is particularly on the spot after Spain and Cyprus this week joined Greece, Ireland and Portugal in formally requesting financial assistance.

Even France, which veered towards its Mediterranean partners and away from Germany after Nicolas Sarkozy's defeat in presidential elections, has to find money quickly to meet EU budgetary targets.

Van Rompuy will hand the summit a roadmap for integration "over the next decade", calling for decision-making powers to pass from national to a central level for the "financial sector, for budgetary matters and for economic policy".

Concrete decisions on his proposal are likely to be pushed back to December. But a report drafted by Van Rompuy and European heavyweights Jose Manuel Barroso, Jean-Claude Juncker and Mario Draghi proposes that eurozone authorities "require" governments to rewrite budgets violating fiscal rules.

This goes much further than present European Commission oversight.

Meanwhile the "ultimate responsibility" for supervision of Europe's banks would also become a European-level concern, whether via the EU-wide European Banking Authority, or the eurozone's European Central Bank.

Shared debt

"All these elements should be buttressed by strengthened democratic legitimacy and accountability," the four acknowledge in the proposals.

For Barroso, this may in turn require "changes to the [EU] treaty" - a political nightmare for London, where Prime Minister David Cameron is committed to holding a referendum in the event of fresh EU power transfer.

Control from Brussels over tax and spending around Europe is considered a first step down the road to shared debt - common guarantees seen as likely to even out borrowing costs between more dynamic northern economies and structurally weak southern neighbours.

Only then, in the words of International Monetary Fund (IMF) chief Christine Lagarde, will the eurozone and its EU trading bulwark be able to "restore faith in the system".

In the meantime, the so-called Troika's "men in black", inspectors from the IMF, ECB and the Commission, may become a more frequent sight around government buildings in European capitals.

Leaders can be expected at the summit to confirm Juncker in his role as Eurogroup chair, and to repackage existing allocations into a "growth" pact.

It may not move markets, but one tangible signal of future direction will be if leaders are ready to confirm an official greenlight for the launch of EU entry negotiations with Montenegro.

Read more on:    imf  |  eu  |  david cameron  |  herman van rompuy  |  christine lagarde  |  antonis samaras  |  france  |  greece  |  cyprus  |  italy  |  ireland  |  spain  |  portugal  |  economy

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