A Good Week for the Euro?

by Ferdi De Ville

Those that still doubted that the EU was a right choice for the Nobel Peace Prize have been rebuked by the Heads of State and Government of the euro area at last week’s summit (13-14/12). The leaders decided at this meeting, which for months was announced as the gathering that would give birth to Economic and Monetary Union 2.0, to keep all peace and quiet and shy away from any decision that smelled of boldness and could cause disturbance.

Since June, European Council President Herman Van Rompuy had been working, in close collaboration with the presidents of the European Commission (Barroso), Central Bank (Draghi) and the Eurogroup (Juncker), on a ‘Master plan’ that should lead to the completion of the Economic and Monetary Union. It would consist of four building blocks: financial, economic, fiscal and political union. It was hoped by European Federalists, long by heart, or only just by mind (those that believe that only drastic integrationist reforms can pull us out of the crisis), that Van Rompuy would succeed in presenting a package deal whereby every camp (northern, surplus countries led by Germany and southern deficit countries led by France) would make some difficult concessions and secure some precious demands. Germany would have to swallow European supervision on all banks and a European bank resolution and deposits insurance scheme as well as a euro area budget for automatic stabilisation in case of asymmetrical shocks, and would gain stronger European interference with economic and fiscal policies, resulting in a European Treasury in the long term, and for France and the southern countries it would be the reverse.

Instead of taking a leap forward on all four legs at the same time, the European Council has done no such thing. Once more the meeting ended in one of those typical lowest common denominator outcomes in which the EU excels. Germany jammed on the brakes when the issue of a  banking and budgetary union came up, causing other countries to hold back the ‘contractual arrangements’ that would put their economic policies further under European surveillance. To save face, a very modest system of common banking supervision for only the 100 to 150 biggest European banks instead of all 6.000 has been agreed. All other issues have been postponed until the June 2013 European Council, where they will be ‘further examined’. It is to be expected that no progress will be made until the German elections in September of next year. And some have hinted that only after the establishment of a new European Parliament in mid-2014, elected by an electorate knowledgeable about the euro crisis, further steps in European integration can be taken.

This summit confirmed the opinion of many observers that our European leaders only succeed in making bold decisions as long as they feel the threat of the pending catastrophe of the disintegration of the euro. The past couple of weeks, such pressure has eased significantly. This is thanks to the Outright Monetary Transactions programme of the ECB established in September that led to spectacular decreases of Spanish and Italian bond yields, and also due to the very recent agreement on the Greek rescue programme that gives the country respite for almost two years, so that its prime minister could confidently declare that “Grexit is dead”. Together with last year´s  two longer term refinancing operation programmes of the ECB, these decisions have made an imminent collapse of the European banking sector or of one of the Member States, and thus of the euro as such, much less likely.

President Van Rompuy called last week “a good week for the European Union, a week to be remembered”, with the agreement on a single supervisory mechanism, the release of a new support credit line for Greece and the receiving of the Nobel Prize in Oslo. It remains to be seen if history will indeed be so kind for Mr Van Rompuy and the others of the European Council. If the last summit of 2012 will indeed be remembered as the umpteenth small, peaceful step – the ‘European way’ – in resolving the euro crisis and building a better EMU, or if it will become the textbook example of the indecisiveness and complacency of our European leaders.

Dr Ferdi De Ville is assistant professor at the Centre for EU Studies, Department of Political Science, Ghent University where he teaches and writes on economic and monetary union and the euro crisis.