Europe’s leaders gather for a mother-of-all-summits this week under intense global pressure to head off a potentially catastrophic economic collapse.
Months ago already, EU President Herman Van Rompuy said in off-the-cuff remarks that the eurozone stood “back to the wall,” “at the edge of a cliff” and “with a knife at its throat.”
That was before the relentless two-year sovereign debt crisis wrecking much of Europe hit the unthinkable — infecting Spain, the eurozone’s fourth-largest economy, and threatening Italy, its third-largest, after earlier rescues of Greece, Ireland and Portugal.
“An unwinding of the eurozone ... would be the defining crisis of the entire century. It would be catastrophe,” University of British Columbia associate political science professor Yves Tiberghien said after last week’s G20 talks in Mexico.
“They created this great experiment,” he said of the 10-year-old single currency shared by 17 vastly disparate nations. “It was very daring, but we know now it’s incomplete, it’s very dangerous, it doesn’t work, it’s not functional to do monetary union without banking union and fiscal union and therefore higher political integration.”
At the summit — to be held on Thursday and Friday in Brussels — the slight and canny Van Rompuy, a former Belgian prime minister, will attempt to take the eurozone up that road.
“I will propose building blocks for deepening our economic and monetary union so that we can show to the rest of the world and to the markets that the euro and the eurozone is an irreversible project,” he told G20 leaders.
The EU’s first moves would be to kick-start growth and integrate Europe’s banking sector, he said.
At talks between the eurozone’s Big Four in Rome on Friday, leaders of Germany, France, Italy and Spain agreed to inject up to 130 billion euros (US$163 billion) — 1 percent of European GDP — into giant infrastructure projects able to provide jobs at a time when one in four young people are unemployed in some nations.
The lesson of the crisis, German Chancellor Angela Merkel said, was “more Europe, not less Europe.”
“We need to work closer together politically, especially in the eurozone. Whoever has a common currency must also have coherent policies. That is also a lesson from the last two years,” she said.
Powerhouse Germany favors common taxation and budget policies — which would require treaty change — but is reluctant to share debt, unlike its traditional core EU partner France, which favors creating eurobonds.
At the Brussels summit, the first of Van Rompuy’s “building blocks” is expected to be a proposal for a banking union, should he clinch a tough-to-reach compromise over the role of the European Central Bank.