EUROPE’S LEADERS are racing to reach a “grand bargain” deal next Sunday to finally stamp out the sovereign debt crisis. In spite of German backsliding, efforts are under way to settle the emergency for once and for all.
The stakes could hardly be higher. Not only are the European powers trying to avert another banking catastrophe, they are also seeking to avert the threat of a new global recession.
The EU authorities must settle three interlinked and challenging questions:
- Can they agree a new bailout for Greece with a greatly increased contribution from its private creditors and avoid market “contagion” at the same time?
- Will they be able to reinforce the capital of weakened banks so they can withstand any disruption in markets as a result of the Greek deal?
- Is it within their power to expand the remit of their bailout fund to convince doubters that it is strong enough to fend off pressure on Italy and Spain?
EU leaders tried to draw a line under these issues at a summit in July. The markets were unconvinced, however, and the worsening turmoil led to pressure for a bigger, bolder response.
In the days ahead, two interventions will be critical. The first is an assessment from the European Banking Authority on the requirement for new capital in vulnerable banks. The second is a report on the sustainability of Greece’s debt by the so-called troika – the team made up of representatives of the European Union, the European Central Bank and the International Monetary Fund.
These will inform the proceedings in a hectic series of top-level meetings next weekend. The action kicks off on Friday afternoon, when euro zone finance ministers meet in Brussels. They will be joined by their non-euro counterparts on Saturday morning. Ministers for Europe gather later that day.
On the eve of the all-important summit, centre-right European leaders hold private talks in Meise, just outside Brussels. This European Peoples’ Party meeting will provide a chance for leaders such as Taoiseach Enda Kenny to hear from German chancellor Angela Merkel, the dominant political figure in the crisis.
On Sunday morning, in the sprawling Justus Lipsius building in Brussels, the leaders of the 27 EU countries will meet for their delayed autumn summit. Only afterwards will the leaders of the 17 euro countries seek final agreement on the questions that divide them. A deal might not come until early on Monday morning.
For Mr Kenny, these talks are crucial. Ireland still looks like the best chance Europe has of delivering a success from its contentious bailout policy but the risk remains that the rescue could be blown off-course.
Furthermore, new measures to prevent any repeat of the debacle are likely to require changes to the EU treaties to deepen the external oversight of national economic policies. This raises the prospect of another Irish referendum. Right now the eyes of the world are fixed on Europe and its weary leaders. The viability of the 17-country single currency is in question. So too is the very notion of European integration.
