Thursday, 28 June 2012

The showdown: Germany v. Italy

The centre of political gravity may be in Brussels today as EU leaders meet for yet another “make-or-break” summit, but all eyes in Europe will tonight be on Warsaw. The German and Italian football teams will be battling it out to see who will go on to the European Championship final on Sunday.

Like the Germany-Greece game last week, tonight’s game will be fraught with political tension. Thankfully, German Chancellor Angela Merkel will not be at the match tonight to humiliate her Southern neighbours, as she did at the match with Greece. Instead she will be here in Brussels, perhaps watching the match with Italian prime minister Mario Monti. And as the Germans and Italians battle it out on the field in Poland, their leaders will be battling it out here in Brussels.

Monti, the ‘technocrat’ prime minister put into place by EU leaders after they forced disgraced former prime minister Silvio Berlusconi to resign, is coming to Brussels today with a list of demands. He wants the EU to take immediate measures to save the Italian and Spanish economies, which are teetering on the brink of collapse. Specifically, he wants the EU to collectivise debt by issuing ‘eurobonds’ – a joint bond guaranteed by all countries using the euro.

Merkel has said a flat ‘nein’ to such Eurobonds, reportedly telling the leaders of Italy, France and Spain last week that the EU will issue Eurobonds ‘over my dead body’. Germany, one of the only economies in the eurozone to be doing well, would defacto be the guarantor of such bonds and would therefore be damaging its own rating to increase the ratings of France, Spain and Italy.

For a year now, each time we’ve had one of these crisis summits in Brussels, we’ve been told ‘this is it, the EU will be saved or destroyed tonight’. But in fact what ended up happening each time is that EU leaders did the bare minimum to keep the euro from collapsing, while not doing anywhere near enough to finally end the debt crisis. So we here in the Brussels press corps are suffering from a bit of ‘summit fatigue’, stung too many times by the boy who cried wolf. Nobody seems to be expecting that this summit will end in something either catastrophic or heroic.

But as with all of these summits, there is a risk that a failure to agree on measures to tackle the crisis could send the markets into a panic and lead to a global economic collapse. It’s no accident that these things are held on Thursdays and Fridays – it gives people time to adjust to the disappointment and calm down before markets open Monday morning. Monti told the Italian parliament this week that the summit could go on all the way till Sunday night if need be.

Ahead of the summit, European Council president Herman Van Rompuy and European Commission president Jose Manuel Barroso have set out a plan for progressively transferring sovereignty over financial matters from eurozone national capitals to Brussels. This would be a hard pill for many countries to swallow, particularly France. But Merkel has insisted on such an ‘economic union’ in exchange for any significant help from the mighty German economy.

Though much of the attention today will be on the Merkel-Hollande relationship, the real drama is likely to flare up between Merkel and Monti. There was even a report in an Italian newspaper (one owned by Silvio Berlusconi, so to be taken with a grain of salt) claiming that Monti will threaten Merkel that he will resign if she doesn’t agree to Eurobonds. Such a scenario seems hard to believe, given that such a threat would be like holding a gun to Europe’s head (a resignation from Monti with no prepared successor would surely prompt global economic panic). But in these crazy times, anything is possible.

It should be an interesting two days at least. Or maybe even four days.

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