“Yet another crucial moment in the debt drama is upon us.”

EU leaders are meeting in Brussels today, including caretaking Taoiseach Brian Cowen, and the Irish Times‘ Derek Scally has had sight of a draft paper on Frau Bundeskanzlerin’s “grand bargain”.

From the Irish Times report

The draft paper is low on detail but high on ambition: “to create a permanent connection between European competitiveness, growth and viable financial politics”. After presenting the broad brush strokes today, Dr Merkel wants EU leaders to discuss the detail and fill in the canvas by next month’s summit.

There is a long to-do list, from fleshing out Berlin’s idea to “harmonise the state pension qualification age” to agree mechanisms that limit governments’ abilities to run up fresh debt. The plan is still being drafted but is to be “implemented within 12 months”, Berlin has decided.

The issues Berlin wants fixed touch on matters of social policy and economic sovereignty which are solely national competences and not the business of Brussels. To get around that, Berlin is recommending intergovernmental agreements as the best way to move forward.

“We don’t see any appetite in the EU to transfer competence on the issues to a European level, we are talking about sovereign states making decisions through their parliaments in discussion with their peoples,” said an adviser to Angela Merkel. “We are thinking of a limited number of measures to which governments personally oblige themselves to implement.”

Also in the Irish Times, Arthur Beesley makes the point that “the timing here from Ireland’s standpoint is rather unfortunate.”

Cowen’s successor may have barely a fortnight to put his stamp on a high-stakes debate with the likes of Angela Merkel and Nicolas Sarkozy. Whether the German chancellor and the French president would be of a mind to listen or to change course is questionable, but such are the unavoidable vicissitudes of democracy.

Three issues are in question as Europe searches for the elusive lost chord to finally resolve the debt crisis: the enlargement of the scale and scope of the current temporary bailout fund; arrangements to underpin a new permanent fund; and a deepening of economic policy co-ordination to ensure the debacle is not repeated.

These are the essential features of a new “grand bargain” under which the strongest euro countries would pledge anew to protect spendthrift, indebted stragglers like Ireland, Greece and Portugal. All three features are interlinked, each is riddled with political and financial complexity and each gives all power to Europe’s mightiest nations over the weaklings.

This is not an abstract point. In the eyes of Merkel and Sarkozy, European solidarity cannot be a free lunch. It is a given, too, that each issue plays first to a domestic audience. Therefore, it may be that bailout recipients suffer the consequences of political forces far from home.

That any promises to reinforce Europe’s bailout scheme would come with a rather large price tag is but one reason to pay very close attention. [added emphasis]

Read the whole thing.

Pete Baker