Euro Crisis Deepens: EU Summit in Brussels Finds No Solutions
In the three years since the economic crisis hit the European Union, the future of the euro and the economy of Europe has never been more volatile. The future membership of Greece is seen as very unlikely, and fears of bank defaults through the continent seem certain. Stocks throughout the world, and particularly in Europe, are plummeting as people are withdrawing their investments to protect from economic uncertainty. The fears that are driving this panic have little to do with the economic downturn, and everything to do with the political machinations that have emerged. The fact that EU leaders cannot come to a consensus on a solution, has resulted in economic uncertainty.
The leaders of all 27 EU member nations converged on Wednesday in Brussels, Belgium to reach resolution on the competing agendas of Francois Hollande, president of France, and a proponent who wishes to secure some stimulus spending, and Angela Merkel, chancellor of Germany, who is committed to the austerity approach.
However, the result of this meeting so far has been deadlock, or more accurately a continuation of chaos. It would seem like such a simple matter to put investors and bankers at ease by coming to an agreement on anything, even if initially superficial. However, there are major political influences that are preventing that. It is true that all of the EU leaders are stating they are committed to EU unity, but clearly they are not doing anything about this at present.
Hollande is pushing for Eurobonds and other stimulus proposals because he is facing parliamentary elections this summer in France, and needs to show that he can meet his promises, and protect France's influence in the EU. To achieve this, he is playing the power cards that France and other countries have over Germany, namely a majority opinion in the EU; and the fact the German economy is too entwined in the EU to actually steer the direction of the euro. These checks were by design and go back decades to the founding of the EU.
Merkel, however, knows very well about these checks on German economic autonomy, and is doing everything to prevent her nation from being taken to the cleaners by the over-leveraged countries that want her to bail them out without any responsibility. The fiscal pact signed last winter by 25 member states put Germany in the position as the lead power broker in Europe. Their relative economic stability has also lead to a cash flight, as people are pulling their euro's out of the struggling economies of Spain, Italy, and Greece, and purchasing bonds in Germany. Interest on German bonds is the lowest they have ever been, meaning people are moving their savings there just to be safe. This further strengthens Germany as the economic centre of the continent. Hollande is trying to displace Germany from this position by reminding Merkel that she needs has backing to legitimize their agenda in Europe.
The most important agenda in the EU now is not economic recovery but instead reaching a resolution to the conflict. Once they have done this, they can go on and give the international business community some sense of stability, even if the economy is poor.