The good thing about European Union (EU) summits is that expectations are so low that almost any decision is treated as a victory. Last week’s European Council meeting was a success, less because of the nuts and bolts of its agreements than the fact that it provided tangible evidence of the direction Europe is going. The eurozone has two paths to choose from. It can either disintegrate, shrinking to a smaller more homogeneous north European core, or the eurozone can become a genuine federal State, expanding monetary union to make fiscal policy and regulation all part of a pan-European system. The council meeting has confirmed that Europe is set to take the latter direction.
The political problem has been finding an acceptable compromise between the savings-rich north and the debt-burdened south. Publicly, it seems impossible to bridge the gap. Germany’s Chancellor Angela Merkel has taken the tough line that the only thing needed is for the south to drain its red ink, take a cut in income, and be drip-fed small amounts of money funneled through the European Central Bank and similar facilities. The southern Europeans, notably Spain and Italy, argue that increasing austerity had become politically impossible and fiscally self-defeating.
The north needed to open its purse strings and be more giving. A compromise was needed. The outlines of a compromise were visible at the European summit. Germany and other northern States would provide more money, in this specific case to help rescue the sinking Spanish banking sector and ease Italy’s continuing government debt problems. In return, these southern governments agreed to surrender some more sovereignty to what is shaping up to be a European-wide banking regulator.
In effect, slowly but surely, Europe is moving towards the creation of a super-State. The present crisis has its origins in what, in hindsight, was an unworkable eurozone chimera: a creature with the body of a single monetary policy with multiple heads when it came to fiscal policy, banking regulation and pretty much everything else.
These are now being fused together under the quiet leadership of Germany, but with the tacit acceptance of Spain and Italy. This will be a long and cumbersome process, as is the European wont. The only fear is that southern Europe, with its financial-crisis-a-week, may not have that much time. That will mean the occasional dollop of money to keep one country or another staggering on until the eurozone is reforged. As was visible at the council meeting, Germany has a programme of charity with purpose and vision. This, ultimately, is the only way the eurozone can survive.