Barroso: “Nobody should be under any illusion: the situation is very serious”

Everyone’s got something to say ahead of tomorrow’s emergency EU summit on the existential European debt crisis.  Whether you believe any of them is another matter entirely…

Taoiseach Enda Kenny is echoing Frau Bundeskanzlerin.

Taoiseach Enda Kenny has said he is also hopeful that Ireland will be on the agenda at tomorrow’s meeting. However, in a statement issued today, Mr Kenny said he did not believe the meeting would solve all of the euro zone’s problems.

“The crisis in the euro area will not be resolved overnight. There is no one magic solution or silver bullet. At our meeting tomorrow we will consider important proposals, but there will be further meetings and further steps to be take before we are out of the woods.”

“Since the crisis began, we have seen something of a vicious cycle emerge. Pressure builds. A meeting is convened. Expectations are raised, unreasonably so. Decisions are taken, but they are never sufficient to the build-up. Rather than gaining confidence, the markets are disappointed. Pressure begins to build again. The cycle continues,” he added.

Mr Kenny said it was not yet possible to say what precisely will emerge from tomorrow’s meeting and that it was “unwise to speculate in these matters”.

“”While the focus will be on Greece and the parameters for a new programme for that country, what is proposed for one Member State cannot be seen or read in isolation. Those countries, like Ireland, that are already in a programme, and those under pressure in the markets, are alive to the real danger of contagion and negative read-across,” he said.

The Irish Finance Minister, Michael Noonan, sounds worried

Speaking earlier in the Dáil Mr Noonan said the threat to the euro “can only survive if its Member States can continue to see that the alternative is much worse and if investors have faith in it”.

“Ireland, along with others, has always accepted very serious constraints on its ability to act because of our commitment to collective action by states. But the status quo is no longer credible and something will have to give. For the sake of Europe I hope that it is the unbending resistance to debt restructuring rather than the currency itself.” [added emphasis]

Frau Bundeskanzlerin is meeting the French President, Nicolas Sarkozy, in Berlin today

Dr Merkel hit out at critics who have accused her of reacting too slowly to events, saying they had “clearly not understood the magnitude” of the crisis.

“The impression is made that everything would be fine if the subject of Greece and the euro could be resolved,” she said, adding this ignored the root of the problem: indebted euro zone members.

German officials said yesterday they were confident the “core issues” of a second Greek plan will be worked out tomorrow but Dr Merkel said she “will not yield” to calls for a quick, superficial fix.

After speaking to other interested parties, of course

President Barack Obama has also spoken to Mrs Merkel about the debt crisis.

“They agreed that dealing effectively with this crisis is important for sustaining the economic recovery in Europe as well as for the global economy,” a White House statement said.

And, possibly with a beady eye on that “hastily arranged meeting”, the president of the European Commission, José Manuel Barroso, has been holding forth [free reg req]

“Nobody should be under any illusion: the situation is very serous,” Mr Barroso said at a news conference. “It requires a response. Otherwise the negative consequences will be felt in all the corners of Europe and beyond.”

Mr Barroso said eurozone leaders must “provide clarity” on the role of bondholders in the bail-out, but said the summit must deal with the “feasibility and limits” of such a plan – making him one of the first senior European officials, outside the European Central Bank, to openly question the German-backed push.

The Commission is known to be concerned about the knock-on effects of getting bondholders involved in the bail-out, since the threat has already led to a run on Spanish and Italian bonds, where traders fear “haircuts” for Greek bondholders may eventually lead to similar hits for them.

But Commission officials are also pushing the ECB to be more flexible. Jean-Claude Trichet, the ECB chief, has warned the bank will cut off funding for Greek banks if the country’s sovereign bonds are ruled in default, since those bonds are used as collateral for ECB loans to banks.

“They have said they will do what it takes to ensure the stability of the euro area,” Mr Barroso said of eurozone heads of government. “Well, now is the time to make good on that promise. There is of course also the responsibility of the European Central Bank.”

Well, we know what the ECB think.

At the Guardian’s Comment is Free, Stephanie Blankenburg nails her colours to the mast while identifying the stark options.

Yet, without decisive political leadership that calls an end to the euro crisis – either by paving the way to a European state or by abandoning the project once and for all – the it will undoubtedly turn into the next global financial crisis, with the UK banking sector and the UK taxpayer on the frontline.

If the global financial crisis of 2007/08 was a private sector crisis, caused by a complete failure of financial markets to assess systemic risk, the euro crisis is one of political leadership. For once, the markets – targeting whoever seems most vulnerable on an ad-hoc basis – are not the main culprits. They only show nerves, understandably so in a climate of the abject failure of those in charge of political processes to admit to past mistakes and take a project forward, one way or the other. In my view, the direction should certainly be towards the creation of a European state with specific features. But that’s for another space to discuss.

Andrew Lilico’s alternative scenario seems more likely than the core supporters of the European Project abandoning the ship.

And a New York Times editorial offers this timely advice

Europe’s leaders need to make hard choices. And they need to make them now.

But then there’s those EU leaders’ track record in this crisis…

Come back tomorrow for the next episode!

Imagine festival 202

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