Another last chance to save the Euro

The great and the not to so good of European leadership is gathering in Brussels today, intent on resolving the Euro crisis. Sound familiar?

by Andrew Saunders
Last Updated: 06 Nov 2012
One thing the Eurozone palavar has not been short on is dramatic pronouncements and earnest-sounding politicians pledging to do ‘whatever it takes’ to sort things out. Indeed, if the bond markets ran on hot air rather than confidence then yields would be at record lows rather than pushing into the danger zone as they are now.  
Unfortunately there has been precious little in the way of action to back up all the fine-sounding words. Vacillating leaders and the clumsy decision-making machinery of the EU has conspired to make a bad situation much worse.
So we can all be forgiven for feeling a little jaded at the prospect of yet another pan-European powwow  over the course of the next few days. But for one thing - this summit might actually be the last chance to save the Euro. The bond markets are running out of patience, and even the power of the sunk-cost dilemma has its limits (that’s the way in which investors tend to throw more money into something they are already heavily involved in, even when prospects look grim, because the can’t admit they might have been wrong in the first place.) If this get together doesn’t produce at least a convincing sounding statement of the way forward then bond yields will shoot up and Christmas could be cancelled all over the Continent this year.
Of course like all major political events, there is a draft plan of sorts in place - increased fiscal union. Germany is in the driving seat, chancellor Angela Merkel having proved herself the spiritual inheritor of Maggie Thatcher’s Iron Lady moniker (if not her attitude to the European project) with all the good and bad that entails. The German insistence on new rules enshrining fiscal probity and discipline is, in economic terms, entirely understandable, for all that it will be very hard to sell to the rest of the Eurozone. Merkel knows however that this is her moment and seem determined to make the most of it.
Any solution will be as much about politics as economics, and the two disciplines are uneasy bedfellows at the best of times. Economists are much given to complaining that politician’s don’t understand them, which is often true, But neither do economists have much of a sense of what is or isn’t politically possible, and it is this latter point on which the whole EU crisis hinges.
So those who complain - with justification - that the whole mess could have been sorted out months ago with a single decisive intervention may be missing the point that a good crisis was always a vital part of the treatment. Only after they have peered into the abyss is their much chance that the Greeces, Italys and Spains of the world might mend their ways.
Then of course there’s the question of the UK’s position in all this, once again a hugely political hot potato. David Cameron is hamstrung by the massive division of opinion within his own party and the lack of a clear strategy that this engenders. He also struggles because of his own natural inclination to try and please all the people all the time: he was a PR man in his previous life, after all.
So, will the Eurozone be saved?  Probably, although it may be much altered in shape, size and function. The truth is that if all those European leaders gathered today in Brussels can’t figure out a way to resolve their differences, then they don’t really deserve to be in charge…

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