Of Useless Summits (and Related Posts)
So, we had another crucial summit, on June 28-29, followed by another also crucial Eurogroup, on July 9. Like all the ones that preceded, and the ones that will follow, they were trumpeted as the final solution to eurozone woes. And as usual, these “final solutions” lasted days, if not hours.
I was tempted to comment immediately after, but I wanted to see the dust settle for once, so as to have more perspective. Did not work that way, though, as news kept piling up. But let’s look at what was agreed.
- We have been sold the new emphasis on growth. The eurozone leaders agreed over a 130€bn spending package. We were told, in the days following the summit, that austerity was over. Now, I call this excellent marketing. First, we are talking about 1% of GDP, a sum which is not even remotely enough to kick start the economy. Second, most of that sum was already allotted, and “fresh” money should be around 10 €Bn, i.e. less than 0.1% of GDP!
- The other very important news is that the vicious circle between financial institutions may be broken. The ESM will be allowed to lend directly to banks. Just as a reminder, until now the bail out of banks had to pass through governments, which by borrowing from EU institutions would see their debt increase, thus in turn making the situation of financial institutions, who own sovereign debt, worse. This mechanism sank Spain, and it is rather good news that it is broken. Except, that once again, what was agreed seems to be reneged. Wolfgang Munchau notices that according to the German authorities the common bank recapitalization will only happen when a banking union is established, which in turn will first require a political union. In other words, my grandchildren will see it (Munchau is optimistic when he speaks about 20 years…). Not to mention that the only real and final solution, allowing debt monetization by the ECB, never even made it to the negotiation table…
- Finally, no eurobonds, and renewed commitment of all peripheral countries to sticking to austerity
Maybe it was wise not wanting to comment about the summit. It really seems good old Brussels business. To be honest there is something really new about these two summits: The fact that some ministers backtracked as soon as they got home from the meeting. Never happened before…
I am clearly under euro-governance-fatigue, reading (and writing) the same thing over and over, and commenting on the infinite sequence of last chance summits. I will take a break for a few weeks, and focus on other issues.