Standing together: German Chancellor Angela Merkel (center) and Italian Prime Minister Mario Monti (right) pose with their ministers following a meeting in Rome (July 4, 2012).Source: Alberto Pizzoli/AFP/Getty Images
It was the fourth “final” time European Union leaders met in a year to find a cure-all solution to the economic crisis.
As the June 28-29 EU summit approached, news of a 130-billion-euro growth plan, France calling for less austerity, Spain requesting a 100-billion-euro bailout, Cyprus becoming the fifth eurozone country to ask for economic assistance, and Greece’s finance minister stepping down due to health reasons were some of the many signs that the worst was far from over.
High-profile meeting: German Chancellor Angela Merkel (left) and Italian Prime Minister Mario Monti (right) participate in a joint press conference in Rome (July 4, 2012).Source: Alberto Pizzoli/AFP/Getty Images
Nonetheless, intense negotiations at the summit introduced two breakthrough strategies: easier bank access to bailout funds and a blueprint for how Europe can achieve fiscal integration within the next decade.
The moves are big steps toward achieving what some believe is the only answer to the bloc’s monetary ordeals: complete unification.
When it comes to financial decisions, it is clear that Germany, as the EU’s economic powerhouse, carries serious weight. Accordingly, Chancellor Merkel was pressured at the summit—particularly by cash-strapped Italy, Spain and France—for more solidarity.
The thought of taxpayers being further hit with a continent-wide shared debt is one Germans do not want to entertain—at least not without stronger centralized political controls in place.
Addressing the summit: Spanish Prime Minister Mariano Rajoy delivers a speech at a press conference on the second day of the European Union summit in Brussels (June 29, 2012).Source: Charlier/AFP/Getty Images
“If the rest of Europe wants Germany to shoulder the burden, then it will have to be done through a decisive move towards political integration, including common defence as well as common economic policy and the loss of sovereignty to Brussels oversight,” The Independent reported.
At the summit, Italian Prime Minister Mario Monti, and Spanish Prime Minister Mariano Rajoy, abstained from signing a growth pact unless something was done to help lower their countries’ borrowing rates. By the end of a fiery extended session, their cries for economic sympathy were assuaged by Germany.
The outcome was chronicled by Der Spiegel: “Merkel had made some tough and unexpected concessions after a marathon 15 hours of talks at an EU summit in Brussels…According to the agreements, euro-zone members states that fulfill the budgetary rules laid down by the European Commission can now receive aid without agreeing to additional tough austerity measures. Strict oversight by the troika—composed of the European Commission, the European Central Bank and the International Monetary Fund (IMF)—will no longer apply.”
It was also agreed that the European Stability Mechanism would assist troubled eurozone banks directly, and bypass the need for government involvement in the distribution of funds.
While many portray the outcome as Ms. Merkel’s 180-degree turn—or even defeat—the deal did not come without German strings attached. In exchange, the bloc’s strongest economy demanded that the European Central Bank have increased supervision over the funds and the banks that receive them.
Though it could be months before such a supervisory mechanism is established, Bloomberg emphasized: “It’s hard to overstate the significance of what happened in Brussels…By pooling resources and authority, it represents an important step toward the kind of political union needed to make the euro area viable.”
Prior to the summit, the release of a seven-page document presented by top EU officials set the tone for the critical meeting. The paper, “Towards A Genuine Economic And Monetary Union (EMU),” champions “a vision for the future of the Economic and Monetary Union and how it can best contribute to growth, jobs and stability.”
Drawn by European Council President Herman Van Rompuy, in conjunction with European Commission President Jose Manuel Barroso, Eurogroup President Jean-Claude Juncker, and European Central Bank President Mario Draghi, the document promotes such monetary measures as sharing EU debt.
The blueprint recommends a 10-year route to fiscal unification, in which four key mechanisms are deemed “necessary for long-term stability and prosperity…and will require a lot of further work, including possible changes to the EU treaties at some point in time.”
These “essential building blocks” are financial, budgetary and economic-policy frameworks, as well as “strengthened democratic legitimacy and accountability” to achieve better economic stability and solidarity across the 27-state bloc. During the summit, however, it was decided the model would apply only to 17 eurozone nations.
According to the BBC, specific proposals include:
The financial framework involves commonly agreed upon limits on government debt and annual budgets for member countries. These would need to comply with “a single European banking supervision system” at both the European and national levels, with the latter having “ultimate responsibility.”
The document added that this could require the establishment of “a fiscal body, such as a treasury office.”
The budgetary framework deals with debt management and would “act as a fiscal backstop.”
The economic policy framework affects aspects of growth and jobs. According to the document, “…national policies should be orientated towards strong and sustainable economic growth and employment while promoting social cohesion.” This includes continent-wide labor regulations and taxation.
The fourth component is the need to strengthen democratic legitimacy and accountability.
“Building public support for European-wide decisions with a far-reaching impact on the everyday lives of citizens is essential,” the proposal stated, adding that the involvement of European and national parliaments “will be central.”
BBC reported that “European Commission President Jose Manuel Barroso said the guiding principle was that ‘greater solidarity and greater responsibility must go hand in hand’.”
The European Commission is also expected to submit additional legal proposals on “a single European banking supervision system covering all banks, a European deposit guarantee scheme and a European bank resolution scheme” before the end of this year (Telegraph).
The EU summit garnered mixed reactions.
Markets rallied to the news as the euro saw its biggest daily spike in eight months on June 29.
“It’s inching closer to a banking union and the closer we get to a banking union would put (the EU) well on the road to a fiscal union,” New York’s Lazard Capital Markets managing director told Reuters.
Before the summit, British Prime Minister David Cameron told Guardian that he understands “people’s concerns about Brussels getting too much power…”
After the summit, however, he said that he was pleased with some steps taken at the meeting.
Others were not. The Wall Street Journal reported that Finland and the Netherlands rejected “deploying the euro zone’s bailout funds to try to lower borrowing costs for countries such as Italy and Spain.”
Even with resistance from within the bloc, the summit’s developments appear to have sparked the EU to take further action to remedy its economy.
Finland’s Minister of European Affairs Alex Stubb told Reuters that the crisis is “forcing European leaders to take very difficult decisions and as we all know very few difficult decisions have been taken in a relaxed atmosphere.”
Decisions at the summit show the continent wants the path of less austerity and more Europe. And to those willing to look into the continent’s past, this comes as no surprise.
In a New York Times editorial titled “Where’s Charlemagne When We Need Him?” Columbia University history professor Istvan Deak stated that “some 50 years ago, Archduke Otto Hapsburg, the last pretender to the crowns of Austria and Hungary, warned that economic cooperation alone would not satisfy the peoples of Europe and that European unification could not succeed unless it was imbued with an abstract principle. Only something as mystical…as the Holy Roman Empire could give people hope, a sense of religious renewal and combat the pernicious effects of local interest, chauvinism, xenophobia and racism.
“Today’s European crisis indeed shows that great political institutions cannot be constituted solely on a rational basis or through the bureaucracy and incrementalism of Brussels. The true purpose of the European Union is to bring about peace, prosperity and equality among the diverse regions and groups. Peace has indeed prevailed on most of the Continent, but in the last few years, with prosperity endangered, continued regional inequality has become even more blatant, while radical nationalism has raised its ugly head.”
The article continued, “Europeans must decide whether they are satisfied with a common market and currency, or whether they want to have common political, legal and cultural institutions. They need a great European Museum and Exhibit, many more pan-European music and film festivals, and the propagation of Europeanism in popular culture to shake off cynicism regarding the European project.”
Clearly, conditions are ripe once again for the kind of unification that took place across the continent many times before. Europeans are once again calling for their leaders to return them to the times of prosperity they once enjoyed—no matter the cost.
Continue to watch Europe. If history is any guide, further integration is just around the corner.