Euro crisis: “The fix is not in. A line has not been drawn. And tensions are rising.”

What to make of the news emerging at the end of the two-day EU summit in Brussels?

It depends.  The RTÉ report tells us

The EU is battling to stem a debt crisis that has raged for over a year and led Ireland and Greece to accept bailouts.

It had promised to unveil a comprehensive solution at this summit that it hoped would reassure jittery markets.

But the abrupt resignation of Portuguese Prime Minister Jose Socrates on the eve of the meeting, after his austerity measures were rejected by parliament, cast a long shadow.

Uncertainty in other euro members such as Finland also prevented leaders finalising fundamental elements of their plan.

‘The euro has survived a critical test but there is lots of homework to be done,’ German Chancellor Angela Merkel told reporters, saying the union needed to ‘atone for past sins’.

She added: “This is a comprehensive package which I think is a big step forward. Whether it will be sufficient, only time will tell.”

And the report carried by the Irish Times adds

Leaders were able to seal a deal on funding for the European Stability Mechanism (ESM) a new, permanent safety net that will become operational from mid-2013.

Ms Merkel backtracked before the summit on a deal that would have forced Germany, Europe’s biggest economy and paymaster, to put up €11 billion for the fund in its first year, reducing her wiggle room for tax cuts before the next election.

Under the compromise, capital injections totalling €80 billion for all euro zone members will be spread out over five years rather than three, with smaller instalments.

Euro zone leaders also formally backed the “Euro Plus Pact” [added link to pdf file], a list of areas for expanded economic policy harmonisation which has been renamed three times because of sensitivities in various individual member states.

Six EU states that do not use the single currency – Bulgaria, Denmark, Latvia, Lithuania, Poland and Romania – joined the 17 euro states in backing the pact, in part out of worries they could be excluded from future policy talks.

Britain, Sweden, Czech Republic and Hungary remain out. In other areas the summit fell short of expectations.

Although leaders had agreed in principle earlier this month to boost the lending capacity of their temporary safety net – the European Financial Stability Facility (EFSF) – to €440 billion from roughly €250 billion, they had to push this back until mid-year because of a pending election in Finland.

Concerns are growing that Irish banks could require more capital than the €35 billion set aside for them under last year’s EU/IMF bailout.

Portugal is widely expected to be the next euro zone domino to fall after Ireland and Greece.

And the Telegraph’s Jeremy Warner adds [that wasn’t his original headline – Ed] I know.

Like everyone else, I’m fast losing the will to live in writing about the eurozone’s seemingly interminable crisis. Apparently, European leaders have held yet another summit in which they have endorsed a new “Euro Plus Pact” on governance and rubber stamped a pre-negotiated enlargement of the European Financial Support Facility (EFSF). Only they are going to need a further summit still sometime in May or June to agree the detail. Nothing can be done before then because of Finnish elections next month, which might overturn the present pro-European consensus.

And the BBC’s Europe editor, Gavin Hewitt, points to a north/south fault line – on which Hans-Olaf Henkel would probably agree.

And he, Gavin Hewitt that is, sees a shadow over Europe…

In Ireland – despite a bail-out – the crisis is not yet over. The new government says that the bill to bail out the sickly banks is still growing. It may need a further rescue. Otherwise the threat is there. Investors, including French and German institutions, will have to be burned. There will be further bank stress tests next Thursday. The Irish government is hemmed in. There is growing hostility towards Brussels. The public won’t take more austerity.

And even though the bail-outs have bought some breathing space they have not solved the fundamental problem. Greece has had the interest rates of its loans reduced and its repayment period extended, yet the country shows no sign of being able to grow its way out of its debt crisis. Its tax revenues are actually falling. Growth is elusive. Sooner or later Greece will have to face its debt mountain.

Chancellor Merkel offers no relief. “Member states,” she said at the summit, “face many years of work to atone for past sins”. And that’s part of the problem – countries like Greece, Ireland and Portugal will be taking the austerity medicine not just for this year, but quite possibly for a generation.

As Charles Grant from the Centre for European Reform observes, “there may be a time when, even if politicians want to do the right thing for the euro, the public will not allow them to do it.”

Brussels is often a strange world. There is a Panglossian upbeat tone to much of what is said publicly, whilst economist after economist predicts a restructuring of the debt is coming.

This was supposed to be the summit that delivered the comprehensive package to end the eurozone crisis. It hasn’t. Three months of uncertainty lie ahead. The fix is not in. A line has not been drawn. And tensions are rising.

I did ask, how is the collective mood now?

Discover more from Slugger O'Toole

Subscribe to get the latest posts to your email.

We are reader supported. Donate to keep Slugger lit!

For over 20 years, Slugger has been an independent place for debate and new ideas. We have published over 40,000 posts and over one and a half million comments on the site. Each month we have over 70,000 readers. All this we have accomplished with only volunteers we have never had any paid staff.

Slugger does not receive any funding, and we respect our readers, so we will never run intrusive ads or sponsored posts. Instead, we are reader-supported. Help us keep Slugger independent by becoming a friend of Slugger. While we run a tight ship and no one gets paid to write, we need money to help us cover our costs.

If you like what we do, we are asking you to consider giving a monthly donation of any amount, or you can give a one-off donation. Any amount is appreciated.