The EU Summit To Save the Euro Has Already Collapsed

During the two-day EU summit on June 28 and 29, all eyes will be breathlessly riveted on German Chancellor Angela Merkel—with one question on all lips: will she blink? Because nothing less than the future of the Eurozone and the euro is at stake. And by extension, the world economy. Only she can save it. And she’d have only 48 hours!

There is even the Grand Plan, issued by European Council President Herman Van Rompuy. It includes all the goodies: an unelected European Treasury with power over national budgets and how much countries could borrow; Eurobonds; a banking union that would guarantee deposits; and the ESM that would bail out the banks. The Grand Plan would require common policies on taxation and employment regulation. An aura of “democratic legitimacy” would be created by joint-decision making with national parliaments. And every item to be funded would be paid for by taxpayers in other countries, particularly by those in Germany.

Mario Monti, Prime Minister of teetering Italy, had set the stage last Thursday when he’d warned that the Eurozone would break apart if summit attendees didn’t sign off on a Grand Plan. And he’d brought his own list of items that were “absolutely necessary” to save the Eurozone.

The summit will also have to save Greece. The new conservative-led coalition government had already announced it would throw out the structural reforms on which the second bailout package had been conditioned. Instead, it came up with a plan that consisted mostly of backtracking on reforms already implemented. And it would use the summit to sell that plan. But even as the plan’s ink was drying, it was broadsided by chaos … in Greece.

On Saturday, three days after being sworn in, Prime Minister Antonis Samaras underwent eye surgery which would prevent him, upon doctor’s orders, to travel—so he won’t attend the summit. He appointed his new Foreign Minister Dimitris Avramopoulos to fill his slot. Brussels accepted this substitution apparently then checked its thick rulebook and did an about-face; the only possible replacement would be President Karolos Papoulias. So, a largely powerless figure will lead the Hail Mary delegation to Brussels.

Shortly after settling down in his new digs, and even before he was sworn in as Finance Minister, Vassilis Rapanos must have caught an inadvertent glimpse of the true numbers; nauseated and with painful knots in his gut, he ended up in the hospital on Friday—and later resigned. So he won’t attend the summit. On Tuesday, a replacement finance minister was named: Yiannis Stournaras, economics professor at the University of Athens. But he hasn’t been sworn in yet and won’t be making the trip to Brussels either. Instead, his predecessor, George Zannias, Finance Minister in the powerless and ineffectual caretaker government, will fill the slot.

The Hail Mary delegation, devoid of political leaders, will present Greece’s plan but can’t negotiate. Remarks threatening the Eurozone with its demise unless Greece got what it wanted—a Eurozone negotiating tradition—would be brushed off as inconsequential. So Greece won’t be saved during the summit [for a Twitter & blog conversation on democracy in a US of Europe that I had with Greek blogger Panos Sialakas, read the very brief but telling…. No Democracy, No Europe].

Meanwhile the Grand Plan is floating around, fishing for reactions. And predictably, it irritated Chancellor Merkel. The balance between stronger common action and common liability has not been preserved, she quibbled. Instead, the paper would allow a rapid mutualization of debt, which she wouldn’t tolerate within the Eurozone, she said, “as long as I live.”

That only-over-my-dead-body stance was the clearest expression yet of what she’d been saying for months, regardless of how the non-German media had imagined her veering off track. Even Foreign Minister Guido Westerwelle, who’d strayed off the reservation on occasion, made it clear that Germany would “not accept” Eurobonds and that there would be no “liability for the unknown.” Europe would break apart not because of too little solidarity but too much solidarity, he said.

“We fight for the cohesion of the Eurozone but against mutualization of debt,” said Minister of State Michael Georg Link. The Grand Plan “reads for whole stretches like a wish list” he said, but to “begin with the mutualization of debt is the wrong path.”

Yet Germany is conflicted. While there are protests on the streets and the internet against the ESM and the fiscal union pact, and while Chancellor Merkel has put her body between Germany and the mutualization of Eurozone debt, industry appears to occupy the other side of the debate.

The latest was Hans-Peter Keitel, President of the BDI, an umbrella lobbying organization representing 100,000 businesses. In a letter, he pushed the government to maintain the euro for “political and tangible economic reasons.” Germany’s export-oriented industry benefits from the euro as it eliminates exchange-rate risks in the Eurozone trade, which represents 40% of Germany’s total exports, he wrote; and inflation has been lower under the euro than under the D-Mark in the 80s and 90s. “We Europeans must expand the monetary union to a political union,” he said and then called for the very mutualization of economic and financial policies that would smack into Merkel’s only-over-my-dead-body stance. And not being a big fan of democratic controls when it came to businesses and bailouts, he denigrated “populist speculation and guesses over the financial burdens and the supposedly undemocratic fiscal policy mechanisms.” He certainly wouldn’t want the people and taxpayers getting in the way of the Grand Plan.

Alas, a much more modest item, the ESM bailout fund, which hasn’t even been ratified yet, is already in hot water with the Federal Constitutional Court. Any step beyond it, such as mutualization of debt and other aspects of the Grand Plan, will most likely be unconstitutional and would require that the Germans junk their sacred and beloved document for a new constitution just to bail out debt sinner countries. Stop dreaming, the Chancellor said today.

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