THE EVENTS of last weekend represent a pivotalmoment in the history of the European project. Regardless of whether the extraordinary financial measures agreed by EU leaders succeed over the longer term in convincing the world’s lenders that the euro zone’s weaker members are good for their debts, they represent a lurch towards closer fiscal and monetary union.
The initial indications are that the steps announced early yesterday morning have had the desired effect. All of the main measures of the risk of a debt default by peripheral euro zone members – including Ireland – have moved substantially in the right direction and markets have recovered their poise. Some nervousness remains as much of the detail of what has been agreed has yet to be disclosed and the heads of state or parliaments of member states have to formally agree the deal. In particular, Germany’s deep unhappiness at being forced to support what it sees as its feckless southern counterparts is there for all to see.
The lack of clarity about the rescue has served also to obscure the extent to which it represents a significant move towards closer fiscal union. The mechanism by which member states as a whole will guarantee some €450 billion worth of borrowings by distressed member states is particularly opaque. But the inescapable truth remains that a group of countries cannot agree to jointly guarantee to repay such an enormous sum of money without implicitly committing themselves to deeper and closer involvement in one another’s budgetary affairs. What was agreed may fall within the terms of the existing EU treaties, which have limited ambitions in this regard, but the spirit of the various agreements struck over the weekend is integrationist.
Equally, the commitment by the European Central Bank to buy up the debt of European governments in the secondary market may technically comply with the ban on it bailing out member states, but its actions speak louder than its words. All of this will be a source of concern to those who oppose further European integration and succour to those who believe deeper political and fiscal union is necessary and inevitable.
For the time being, the millions of European citizens whose wellbeing is dependent on a functioning single currency and the creditworthiness of their governments and banks, should be relieved that the EU has functioned on this occasion and contrived a solution that was comprehensive enough to reassure the global financial system.
The stresses and strains in the system remain substantial and there can be no guarantee that new pressure will not come on the euro and individual member states in the coming months. However, it is to be hoped that the deal forged over the weekend will prove durable and effective enough to deal with further challenges, because it is clear also that the erosion of sovereignty implicit in much of what was put in place is as far as the dominant member states are prepared to go for the time being. A good day for Europe.