In the end, Italy and Spain got what they wanted at the summit in Brussels: Spanish banks will be recapitalized directly by the EU’s emergency fund, sparing Spain greater public debt and raising the hope that Madrid and Rome’s borrowing costs will drop. With last Friday’s decision, Europe can hope that at last the markets will believe that the eurozone’s members will protect their common currency as well as their own economies — something that was not evident from the moment that the Greek crisis broke out. Now we need to learn how much the European banks will be under the control of a central, European mechanism. In other words, we must see the extent to which Germany achieved its goal of the eurozone exerting greater central control over its members’ economies.
Let’s not rush to see the deal as a defeat for Germany (despite the populist criticism of Chancellor Angela Merkel and the reservations expressed by the Netherlands and Finland). It is an interesting, perhaps very fruitful and beneficial draw, which allows the eurozone to avoid immediate collapse while furthering the long-term process of economic and political union. The big issue now is whether the Europeans gained enough time for the euro to stand firm so that the EU can move toward greater union. Furthermore, will the people of Europe be ready to hand over an even bigger part of their national sovereignty in exchange for policies that will allow the euro to survive?
Nothing guarantees the success of last Friday’s decisions, but at least the pressure on Spain and Italy was lifted, averting what could have quickly turned to the eurozone’s end. Now the common currency has the opportunity to go on, and it allows us Greeks to hope that we will have the chance to keep up with our partners. If our public debt too is relieved of the 50 billion euros that are slated for bank recapitalization, who will complain if the price is greater control through an EU-wide banking union that will also guarantee our deposits? Such debt relief will change everything here, and even make possible a Greek revival.
The Germans have been saying for a while now that the eurozone has three problems: A banking crisis, a competitiveness crisis and a sovereign debt crisis. They propose a new devotion to the rules by everyone and stricter market regulation. A few days before the summit, Merkel made the dramatic declaration that Germany would not shoulder common debt (i.e. allow Eurobonds) for as long as she lived. Perhaps that is why many have jumped to the conclusion that the summit’s decisions were a defeat for her. Let’s wait, though, for the details of the deal to see what Germany gained in terms of exerting greater control over member states’ economies at the same time that both the banks and their countries will be helped to such an extent as to encourage greater competitiveness.
It is worth noting that the new French President Francois Hollande strongly supported Italian PM Mario Monti and Spanish PM Mariano Rajoy in their successful demand that bank risk be decoupled from sovereign risk, and that the loans from EU taxpayers, through the ESM emergency fund, not have priority over private sector loans. This was intended to undo at least some of the damage done to the eurozone’s credibility by Germany’s insistence on the haircut of Greek debt, and it is clear that the Europeans have learned what they must avoid. It is also very likely that Hollande had come to an arrangement with Merkel on the issue of the banking union before the summit. The two had already agreed — at Hollande’s insistence — to the creation of a growth pact as a counterweight to the Stability Pact. The fact that Monti and Rajoy refused to ratify this 120-billion-euro growth project before they got the deal for the banks’ recapitalization raises the question as to how much this really was a clash between North and South.
Whatever happened — whether the match was fixed or whether its result stemmed from hard negotiations and the fear of past failures — the outcome allows us all to hope that at least the eurozone and its member states will be able to continue the struggle for a viable future.