The latest EU summit produced a new pact on budget discipline, as many analysts expected. But the most important questions facing the eurozone are yet to be answered, writes Bernd Riegert.
European newspapers often refer to German Chancellor Angela Merkel as the "Iron Lady" - and she certainly lived up to the nickname at the latest European Union summit in Brussels.
Although financial markets, the International Monetary Fund (IMF) and World Bank all hoped Germany would signal it was willing to inject more cash into the eurozone's crisis management fund, Merkel stuck to her guns and withheld any such assurances.
Instead, Merkel pushed for "small steps" aimed at shoring up confidence in the eurozone and resolving the bloc's debt crisis.
The latest summit only pushed the European Union a few centimeters closer to a solution. But any progress is better than none.
The signal leaders meeting in Brussels sent to potential investors was clear: "Look here! We've set up a stricter fiscal pact and promise to abide by these budget rules in future."
Bernd Riegert says Merkel shouldn't have delayed talks about Greece
Just how much that will impress financial markets remains unclear, however. The uncomfortable-sounding "fiscal pact" devised by European leaders is a long term project offering little in the way of immediate gratification. It could take years for the so-called "debt-brakes" and "golden rules" to restore the health of some national budgets. And even then many issues remain unresolved.
Critics say the fiscal pact's biggest weakness lies in the fact that two of the EU's 27 member states - Great Britain and the Czech Republic – opted out from the beginning. It's a charge optimists are tempted to turn around 180 degrees, arguing that getting 25 nations on board in the first place was a major success.
The new fiscal deal may well improve European budget discipline if it includes adequate punitive measures for non-compliance - not to mention the political will to implement them.
Devil in the datails
The good news is that most of the procedural steps involved in managing the pact already exist in EU law. The bad news is that everything will become more complex.
The 27-member European Union now contains two sub-groups: the 17-nation eurozone and the new 25-nation fiscal discipline club. Discussions about which countries should host which meetings - and when - have been scheduled for March, like so many other key decisions.
Defining rules and responsibilities compatible across these three overlapping structures will be no mean feat. And explaining the mechanics of the pact to investors unfamiliar with the intricacies of EU law will be even more of a challenge
Chancellor Merkel kept further debate about further short-term stabilization measures off the summit agenda. That was a terrible mistake. Discussions about Greece and the expansion or combination of rescue funds were all postponed.
Although delegates approved the contractual basis for the European Stability Mechanism (ESM), they did not address serious concerns that the fund's 500-billion-euro volume is too small to prevent the debt contagion spreading from Greece to Spain or Italy.
European leaders appear to be tapping around in the dark as they search for a solution to the financial crisis. Indeed, many of the high-profile plans they've hatched over the past two years have flopped.
Does anyone remember the leverage scheme that was meant to double the impact of the rescue fund? No one mentions it anymore. Investors had no faith in the plan.
A deal that would have seen private creditors pick up part of Greece's debt tab were initially hailed as the ultimate corrective measure. But debt restructuring efforts have lost momentum after investors staged a "buyer's strike" and kept away from sovereign bond markets, starving governments of badly needed cash.
And whatever happened to the 200 billion euros European states wanted to lend the International Monetary Fund? The cash was meant to be transferred by Christmas 2011, but has yet to appear.
The chaotic grind shows no sign of letting up. But how long can Chancellor Merkel and her European counterparts sustain this strategy of "small steps?"
The short answer is: as long as the European Central Bank permits. The ECB's 500-billion-euro injection of cheap credit is what's kept Europe's banking sector afloat since Christmas. Not European politicians and their talks about pacts.
Author: Bernd Riegert / sje
Editor: Joanna Impey