Leaders of Germany and France have come up with their new big idea to save the euro. But a leaked report ahead of a crucial EU debt summit revealed that Herman Van Rompuy, the European Council president, has proposed a fast-track “fiscal compact” that does not need a national referendum or ratification by parliaments of each eurozone country.
Germany and France want all of Europe to follow a German fiscal discipline – spending as much money as they receive in taxes, and no more. Angela Merkel, the German chancellor, believes the only way to achieve that is to enshrine the budget rules in EU treaties. That way, the EU could get tough and impose stiff penalties on countries that overdraw.
Another key issue is the role of the European Central Bank (ECB). If the ECB starts buying eurozone countries’ bonds on a massive scale, it would mean a radical change in its role as it was not set up to be a lender of last resort or to be used as an EU bailout fund.
Some argue that in the longer term, greater ECB flexibility could lead to eurobonds – bonds that pool eurozone debt – which will even out the current imbalances. But for now, Merkel says eurobonds offer no solution to this crisis. Her new plan seems to involve the EU guaranteeing the debts of its member states.
As the eurozone debt summit draws near, there seems to be confusion in Europe with proposals coming in from all sides. But are any of them credible enough to resolve the current situation? Is Europe experiencing a leadership problem or a structural crisis? Can European leaders win the fight to keep the euro a stable currency?
Inside Story, with presenter Stephen Cole, discusses with guests: Ansgar Belke, the research director at the German Institute of Economic Research; Pieter Cleppe, the head of think tank Open Europe’s Brussels office; and Clem Chambers, the CEO of ADVFN, Europe’s largest financial website.
“We are no longer in the world of economics. We are in the world of politics, and politicians are not necessarily that great in economics. Since the balloon went up with the credit crunch and particularly now with the sovereign debt crisis, it is no longer about real economics. This is all politics. The fundamentals are [that] most of Europe is very broke, America is very broke, [the] UK is very broke, and to fix that is going to take a complete realignment.”
Clem Chambers, the CEO of ADVFN
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