Europe stares into the abyss

On the night of May 9, this year, through to the morning of the 10th, Europe faced its death, “stared into the abyss” and was reborn.

Or was it? Like all births, survival of the new infant is most at risk in the early months. In this case doubt not delight was promptly announced by the parenting team. The presidents of the German and Dutch central banks and even the Chief Economist of the ECB – the European Central Bank – let it be known they had voted against Europa’s rebirth, when they opposed the huge new ECB fund. Without their support she is predicted only a short life. 


I started to learn about this as I attended a fascinating afternoon of discussion yesterday at the European Council on Foreign Relations held jointly with Charles Grant’s Centre for European Reform. It made the debates over the Labour leadership and the UK budget seem childish. In the first session Paddy Ashdown lambasted the fashionable hostility to the EU. “Either deepen or die,” was his warning. It seems his party’s Conservative coalition partners can’t see what the fuss is about.

Such is our parochialism.

But the leaders of Europe certainly do know what Ashdown meant. Particularly gripping were the contributions from Italy’s former EU Commissioner Emma Bonino and Joschka Fischer, Germany’s former Foreign Minister, in a panel chaired by Mark Leonard, with George Soros calmly setting out why the Euro might collapse and precipitate a lasting political and economic crash across the continent.

The ECB vote concerned its buying the bonds of economically ‘troubled’ countries in the Eurozone. At the time, I had assumed that this apparently technical issue was just about managing the markets, even though I knew the €700 billion fund was absolutely gargantuan. In fact the future of the EU’s government was recast.
 What happened was that on Thursday and Friday, 6 – 7 May the Eurozone experienced what Jean-Claude Trichet, President of the ECB described as “severe tensions”. Bluntly, a gigantic Lehman-style bust was on the cards for the European financial system and the world.

The EU leaders met over the weekend and the vast package of support was agreed. Critically, it permitted their Central Bank to buy bonds from states in the Eurozone, something previously held to be forbidden by Europe’s various treaties. The implication is that these countries will now have to bring their financial systems under shared authority and therefore we – or rather they – are on the way to a European state.

Bonino, who was amazed to the point of incredulity, described “the long night” of 9/10 May when, in Fischer’s words, Europe’s leaders had “stared into the abyss”. Decades of resistance was cast aside in a single session. A two-speed Europe was born, as the financial government of the 16 Eurozone countries was created. The EU treaty forbidding borrowing from the centre was depassed. Centrally determined social and budget policy will follow. (For an account of the battle if not of the significance for European sovereignty see Ian Traynor’s Guardian report )

In an extraordinary interview with Jean-Claude Trichet the European Bank’s President, in Germany’s formidable weekly Der Spiegel, conducted shortly afterwards and posted in full on the ECB’s own website, we are told, “There is a need for a quantum leap in the governance of the Euro area”. This reads less like a suggestion than an announcement. Here is a short extract, with its revealing tone:

“…we must now demand extensive adjustment programmes from the governments, which the Heads of State and Government committed to the Friday before last. They are committed to accelerating the consolidation of their budgets. They know what is at stake now.

SPIEGEL: Would it not be good if a country such as Greece were able to leave the euro area?

Trichet: No. This is excluded. If a country joins the euro area, it shares a common destiny with the other members. There is a need for a quantum leap in the governance of the euro area. There need to be major improvements to prevent bad behaviour, to ensure effective implementation of the recommendations made by ‘peers and to ensure real and effective sanctions in case of breaches.”

No more bad behaviour, then?

Everyone seemed to agree on the following: a) the Euro is in grave danger; b) if the Euro smashes up it will be the end of the entire EU project as it was conceived politically and strategically; c) therefore the Euro has to survive; d) it can only do so through a common fiscal policy with coordinated budgets and sharing domestic economic sovereignty under common rules.



Can this happen? Soros, who helped fund and launch the European Council out of concern for the EU’s political weakness, did not seem to be optimistic. For him, the problem was Germany. It wants to be a middle power and not impose its will. But by not wanting to impose its will it is in fact imposing itself, without understanding the responsibilities it actually has to answer for. Shortly, he will give a lecture in Berlin to set out his views.



Joschka Fischer was both more alarming and more optimistic. The Euro had to survive its leaders, the Merkel government was not up to the task, but you could not call for solidarity when one part of Euroland was retiring at 55 and another lot at 67. The Germans, simply would not contribute to that. Nonetheless, he thought that the political determination existed, driven by fear of the consequences of failure.

I asked a question about the democratic legitimacy of all this. The British diplomat John Kerr, who was described as having had a part in drafting more European Treaties than anyone could remember, told the room that what was needed was to “create the facts”. Then try and ensure their legitimacy. Anatole Kaletsky of the Times (now unfortunately closed off from links as he writes from behind the Murdoch paywall) agreed. There was a danger of too much direct democracy, referendums and public participation, he stated. The point of representative democracy was to elect leaders who could take the necessary decisions, the markets will follow.

Soros, who had emphasised the very “profound” nature of the crisis, pointed out that the huge Euro bailout was punitive in its rates, that the attempt was to follow rather than lead ‘the market’ in setting them and that this was not really a solidarity fund.



If there was clear Franco-German agreement the Euro might be safer. But reports like this one from the meeting of Merkel and Sarkozy earlier this week suggest a titanic struggle is taking place. From little Britain’s point of view, all one can say, it seems, is that the future growth of a much weakened domestic economy may depend on the Eurozone growing. For this the Eurozone has to act in unison and survive its already rocky political rebirth – while its banks are terrified, its leaders unready and at odds, and its peoples largely opposed.