EU is bringing global economy to the brink

EU governments must display collective responsibility and leadership.

 

 

It is not just the eurozone that is teetering on the brink. The in-fighting and the prevarication that have characterised the European Union's handling of the sovereign-debt crisis have persisted for so long that the eurozone has managed to drag others to the edge of disaster as well.

Those EU member states that are not part of the eurozone are not immune – and they know it. Nor can the United States economy (whose debt problems are arguably greater than Italy's) cut itself loose from its transatlantic trading partners. Everyone, even China, needs the eurozone to find a way out of this mess.

  

So, how do we come to be here? The enormity of the potential disaster that now confronts the eurozone (and, with it, the global financial system) poses a none-too-subtle question: how is it that the EU's leaders have screwed up so badly to bring us this close to the edge?

Since early in 2010, the European Central Bank and the finance ministries of the eurozone could see that some form of rescheduling or restructuring or reordering of Greek sovereign debt would be necessary. But finding an enduring solution would take time.

The agreement of 10 May 2010 on a bail-out for Greece bought the EU and its member states that time. But ever since, they have squandered the precious time, in the process allowing Ireland and Portugal to be dragged into the mire. The cost of this prevarication is eye-watering, running into billions of euros.

At the end of last week, the debt crisis tilted towards farce with the Berlusconi-Tremonti show. But the farce carries with it the potential for tragedy, because Italy's economy, unlike that of Ireland, Greece or Portugal, cannot be dismissed as small and peripheral. The size of Italy's public debt and its banking sector are together enough – should they fail – to break the euro.

What the resulting turmoil on the markets shows, to any eurozone leader or finance minister who cares or dares to look, is that there is now no margin for error.

If the eurozone leadership does not get its act together this week, then the eurozone banks will be consigned to hell in a handcart (which may yet happen anyway, because things have been left so late). That was, effectively, what Mario Draghi said yesterday in a speech in Rome in which he said that the debt crisis was entering “a new phase”.

Draghi, who is supposed to become president of the European Central Bank later this year, could be forgiven for wondering what, if anything, he will be presiding over. But he correctly identified the basics that must now be delivered: defining “with clarity” the political objectives, the scope of the instruments and the resources.

That, surely, is where the EU must now concentrate its collective efforts. When this crisis is over, one way or another, there will be plenty of time for reprehension – a blame game between Berlin, Frankfurt and Brussels will rage for months, if not years – but this is not the moment for either recrimination or a final reckoning.

Whatever the sense of injustice that might be felt in any particular finance ministry, the circumstances permit no one to indulge emotions. There is no shortage of ideas as to what, technically, might be done. What has been missing up to now is a sense of collective responsibility and leadership. The leaders of the eurozone have to come together, in a full, sober, humble appreciation of the chaos that now threatens. They must work with the EU institutions, and the International Monetary Fund, to reach agreement on their recovery plan. They must step back from the brink.

europeanvoice.com