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European summit to start today

October 18, 2012 Il Sole 24 Ore
Expectations for today and tomorrow are not running high. The upcoming European summit has been projected to be business as usual. On its eve, many Germans (first in line) are bracing for the outcome of an event that looks—too much—like a rerun of the one in June. Not because its success inspires imitation; on the contrary, because a little more than four months later, the commitments made then, in order to create “anti-fire barriers” and stop the euro crisis, got bogged down in the swamp of interpretation differences—the perfect euphemism for conflicting national interests.

Thus, today and tomorrow, Bruxelles will essentially host a summit repetition to confirm that, despite all, the promises made in June will be maintained: those on unified banking supervision will be handed over to the European Central Bank (ECB), as well as those on the recapitalization of banks by the European Stability Mechanism (ESM), which, in the meantime, became operational. However, the original calendar will not be respected.

In fact, it is very unlikely that the new centralized supervision system will be able to be kick in on January 1 even though, unlike her finance minister, German Chancellor Angela Merkel, together with Italy and France, would like to speed up the pace. Aside from Germany, other countries—inside and out- of the euro zone—are pushing against a tight deadline, even though an ad hoc solution for Spain is being discussed behind the scenes. The goal, in the event it files a formal aid request for its banks (or else) in November, is to prevent its debt from soaring due to the 60 billion euros (6 percent of GDP) it needs.

At the Brussels summit today and tomorrow, there will be a strange Europe, ridden by mutual lack of trust and growing absence of popular support. On one hand, it will challenge the relative clemency still shown by markets by postponing decisions on supervision and ESM codes of conduct, which will prevent the ECB from resorting to its anti-spread artillery; on the other, while slowing down the implementation of the June commitments that will supply the Union with a precious anti-crisis arsenal, it does not hesitate to rush midterm radical reforms—courageous, for sure, but maybe premature ones—as the already announced ones (vital for the weakest) give way to the new ones for the sake of convenience or electoral gain.

“Solidarity and integration should proceed at the same pace,” French President Francois Hollande said yesterday to his German counterparts, perfectly in tune with Mario Monti’s position. Moreover, the nasty rhetoric of the north, still ranting about “southern idleness,” is contradicted by facts. In the last two years, the average deficit in the euro zone dropped from 6.5 percent to 3.2 percent, and debt is by now below 92 percent. In the last two months the balance of trade went from a 27 billion euro deficit to a 47 billion surplus, thanks to the recovery of Mediterranean exports, in particular those of Greece, Spain and Italy. All this happened in the midst of a recession (–0.3 percent), unemployment over 11 percent, decreasing salaries and inflation at a yearly 2.6 percent rate.

With the “thin” European pact for growth proceeding so slowly and the so-called European solidarity that, when it does kick in, imposes the harshest conditions on the unlucky countries that ask for it, expecting a further crunch on national sovereignties in terms of budget and structural reforms, like German Economy Minister Wolgang Schäuble does, is politically reckless. Even Merkel said that, yes, at the summit they will talk about it—but with caution.

After the euro zone has been stomaching the 6 Pack, the fiscal compact and the 2 Pack—in other words, three agreements that reduce room for maneuvering within the member states and legitimate European intrusion in the national policymaking decisional processes—the German minister now proposes to create a European supercommissioner with the power to reject national budgets or to suspend their implementation in the event they do not comply with the stability regulations.

Also, as a warranty on the implementation of economic reforms in the future, the states should sign “individual contracts” with Brussels. Although presented by the Van Rumpuy report, this is another German idea. All this in exchange for the creation of a fund for the euro zone, able to stabilize in the eventuality of asymmetrical shocks or to distribute aid to the most ambitious reformers.

“If we had these covenants since 2000—instead of ignored EU recommendations—we would not have reached the crisis we have today,” a European diplomat commented yesterday. “Before venturing beyond on budget control and discipline—which is a lot already—we should start to implement what we have already decided,” said another one with opposite ideas.

Surely, the summit about to start is a business-as-usual one, but it will include digressions on the near future as well as decisions that should be finalized as early as next December, in order to initiate serious negotiations by 2013. What we should expect in Brussels are, in fact, extremely hard clashes.