Win-win moment in Europe takes edge off summer of gloomy predictions
Ugly eurozone-crisis dynamics threaten to make it a summer of social unrest. But Spain's Euro2012 win and Germany's agreement on a European rescue fund have shifted the tone.
The sign of the Euro currency is painted onto the glass door of the Academy of Arts in Berlin as the Brandenburg Gate is reflected on it July 3. The graffiti was created by the design group Bureau Mario Lombardo as part of the Berlin Biennale art festival.
Thomas Peter/Reuters
Paris
听Europe moves into summer on a more affirmative note after an EU decision to pull Italy and Spain from the brink, 听and after a remarkable victory by Spain in the Euro 2012 games Sunday that restored national pride just when it was at an ebb.
Ugly euro-crisis dynamics threaten to make it a summer of gnashing teeth and social unrest, especially on Europe鈥檚 southern tier, where unemployment among youth averages 40 percent.
And now with an audit in France showing that President Fran莽ois Hollande must find $40 billion in austerity cuts in the next 18 months, it is hardly business as usual on the Continent during vacation.
But spirits lifted almost in surprise after Germany鈥檚 chancellor Angela Merkel made concessions from her austerity-only approach last week, and streets in Madrid turned ecstatic after the Spanish team won its third straight international match, something never done before.
For the first time in the euro crisis, analysts are talking 鈥渨in-win,鈥� however qualified.
The June 29 EU meeting seemed ready to fail but ended on high note, albeit qualified, after Mrs. Merkel, in concert with Italian Prime Minister Mario Monti, agreed to allow a $650 billion European rescue fund to buy bank debt and stop the 鈥渃ontagion鈥� of market speculation that was engulfing Italy and Spain. (On cue, Italy鈥檚 soccer team promptly beat the Germans in the Euro 2012 semi-finals.)
The effect of the decision brought immediate rejoicing in Ireland, which has a surfeit of bank debt pulling down its economy;听 sighs of relief were heard in many European capitals. 听
鈥淭he principle of a direct recapitalization of banks by the European Stability Mechanism without increasing the sovereign debt of a country is a significant advance,鈥� says Thibault Mercier, economist at BNP Paribas in Paris, 鈥渁nd it is useful for Spain, which faces potentially as much as 100 billion euros of bank recapitalization.鈥�
鈥淭he political tempo of the European construction is very slow,鈥� Mr. Mercier continued, 鈥渁nd what was achieved in the last few months was quick, even if it seemed too slow for the markets and for investors.鈥�
Is the euro crisis over?
Hardly.
France faces cuts
In France, Mr. Hollande, fresh from coordinating a good-vibe 鈥済rowth pact鈥� for the EU last week, and from bringing a fundamental new shift in European dynamics by backing听 Italian Prime Minister Monti鈥檚 plan to avert collapse 鈥� now himself must make heavy austerity cuts at home, and find some $12 billion in new revenue.
Hollande won the French presidency, and his Socialist Party won both houses of parliament in late spring on a rally cry of 鈥済rowth.鈥�
But it has been long understood in the Elysees Palace that cuts were needed to avert the very kind of market disruptions that sent Greece, Ireland, Portugal, and now Spain and Italy into uncharted waters.
Since 2010, Greece, Ireland, and Portugal have taken some $240 billion in bailout funds, and French debt-to GDP rates are at a worrying figure of near 90 percent.
Knowledgeable French sources say Hollande will achieve much of this goal by not replacing civil servants and government employees. Some 24 percent of French working population is paid by the state, and Hollande will reportedly not replace a quarter of those retiring.
A previous plan by former president Nicolas Sarkozy would have avoided replacing 1 of 2 retirees. Hollande hopes to split the difference, with the exception of the teaching and police ranks.
Hollande emerged from his first EU summit with some success toward a听growth policy and a sense that he had politically moved toward 鈥渞ebalancing鈥� Europe by aligning with Italy and Spain against the austerity orthodoxy of Germany that has set the pathway and solutions for Europe during two years of debt and banking crisis.
The 鈥渨in-win鈥� in Brussels for Merkel is that she averted the hated idea of mutual or common debt in Europe that would be symbolized by issuing euro bonds; Merkel also kept direct supervision of banking rules.
Der Spiegel opined on the weekend that Merkel managed to sell Hollande a growth pact that mainly relied on unused EU project funds and 鈥渨on鈥檛 cost Germany a cent.鈥�
New York Times columnist and Nobel economist Paul Krugman, in a piece titled "Europe's Great Illusion," argues the concessions made by Merkel are "tiny compared with the scale of the problems."
Speaking of the measured uptick in spirit, Cedric Thellier, a eurozone specialist at Natixis in Paris, comments that,听"I don't know if this positive feeling will hold 鈥� all summer long because you have to get a concrete follow up.听But this鈥eems a more positive summit that the previous ones for Europe鈥� because of the consensus鈥� and the breakthrough. France gave up some ground on the eurobonds and Germany did the same with the banking union, provided it is controlled by a trusted supervisor like the ECB [European Central Bank闭.鈥�