Faced with impending economic disaster, European leaders are thinking up new ways to save the single currency.
"A secret plan to save Europe": That's how the German newspaper Welt am Sonntag described it this weekend. According to the paper, European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup chief Jean-Claude Juncker and European Central Bank President Mario Draghi were all working behind the scenes on a master plan.
But it turns out the grand plan is not all that secret. At the last European summit on May 23, the four were explicitly given the task of finding a permanent solution to the crisis by the end of this month.
Already the goalposts have moved. The main question is no longer whether Greece can stay in the eurozone, but whether Spain, a far larger economy, will be in a position to rescue its struggling banks.
And the elite four have already let slip a number of possibilities for saving the single currency. Last week, Barroso indicated that EU leaders were ready to discuss a closer economic union amidst mounting concerns about Spain.
"We intend to look at the further steps we need to take towards a full economic union, to complete our monetary union," he told a news conference.
France wants direct aid for banks
Barroso did not specify exactly what he meant by a "full economic union." But that became clearer when EU Commissioner for Economics and Monetary Affairs Olli Rehn indicated that the leaders were considering a "direct recapitalization of the banks" following a conversation with the new French Finance Minister Pierre Moscovici.
Rehn was implying that the struggling Spanish banks could well be bailed out by EU rescue funds. At the moment, only governments can seek help from the EU. And if the German government had its way, that's how it would stay. The Germans are scared that they will have to foot the bill for bailing out ailing banks elsewhere in Europe, without having any control over them.
Moscovici's own response won't have made Berlin any calmer. He told the commissioner that he was "for a banking union," and added that he hoped the matter would appear on the agenda for the EU summit at the end of June.
At a meeting between German Chancellor Angela Merkel and Barroso on Monday evening in Berlin, Merkel seemed to allow room for some concession. She said she would discuss how far banks should be placed "under a specific European supervision."
She stressed, however, that these were long-term considerations. She avoided the word "banking union." The chancellor apparently shares the view of many that the single currency can't go on like this. Even the fiscal compact, which took so long to come to fruition, and is currently in the middle of a difficult ratification process, already seems insufficient.
Euro 'can't last' in its current form
Merkel was probably responding to a comment from ECB head Mario Draghi last week. He said that the crisis had exposed the inadequacy of the financial and economic framework set up for the monetary union before it was launched in 1999.
"That configuration that we had with us by and large for ten years which was considered sustainable, I should add, in a perhaps myopic way, has been shown to be unsustainable unless further steps are taken," Draghi said in response to questions in the European Parliament.
Only gradually did it become clear how dramatic this statement was: the man in charge of the European Central Bank no longer believes in the future of the euro in its current form. Draghi explained what he meant by the "further steps" he saw as necessary.
He said the next step was "for our leaders to clarify what is the vision ... what is the euro going to look like a certain number of years from now. The sooner this has been specified, the better."
That alone, he said, would make an important contribution to growth and would reduce the risks for smaller states. The central bank, he said, cannot "fill the vacuum of the lack of action by national governments."
Van Rompuy calms the fray
Europe's leaders all seem to agree on one point: The currency can't be saved with a series of small gestures. Some are arguing for unconditional and comprehensive help as soon as possible. Others, like the Germans, who would bear the brunt of the burden, see it differently. They want to prevent any loss of discipline.
But amid all the doom and gloom, it was once more European Council President Herman Van Rompuy who spread a glimmer of confidence. At a summit between the EU and Russia in St. Petersburg this week, he was asked by a journalist what would happen if Europe failed.
"I refuse to answer hypothetical questions, because we won't fail. At the end we will have more Europe, not less, and we will overcome this crisis step by step," he said.
Author: Christoph Hasselbach / ji
Editor: Michael Lawton