The latest European summit on the future of the single currency is taking place today and tomorrow in Brussels. The outcome of the meeting is hoped to bring an end to the drastic instability of the region, and provide a road map toward unifying the European Union, and solidifying the Euro.
There are several outcomes possible from the conference, here’s our list of those most likely to appear when the results are announced some time tomorrow. These options are not necessarily exclusive.
The Grand Plan: This was unveiled by European Council President Herman Van Rompuy. It contains measures that would bring about a unified bureaucratic Treasury with control over the budgets of the member states, common debt in the form of Eurobonds, a holistic banking system reform that would guarantee deposits across the monetary union, and a European Stability Mechanism.
The plan, which is Europe’s best hope of stability, is unlikely to be ratified in any form even close to its current completion. It would require a common taxation policy, anathema to some smaller member states, including Ireland, which would almost certainly have to ratify it by referendum. It also contains a debt mutualization measure, which Germany has come out against repeatedly.
A Frankenstein form of the plan is possible, but it would not relieve the markets in the same way a comprehensive plan might. The likely components of a Frankenstein plan would be common banking system regulation, and a weaker form of common debt. That might come from the ECB rather than Europe’s political elite.
If the plan, or aspects of it are to be announced, a road map of implementation would be delivered. With ratification and legal difficulty that might take as long as 5 to 10 years. It is the political will, rather than the technical strength, of the plan that will reassure investors.
A Decision On Greece: There is no little that the European leadership will allow this summit to end without making some kind of decision on Greece’s future. The new Prime Minister, Antonis Samaras cannot travel because of eye surgery, and so the country’s President Karolos Papoulias, mainly a figurehead, will take his place.
Greece’s new government claims to wish to stay in the European Union, but want an entire renegotiation of the structural reform bill that most Greeks want to see ended. European leadership will have to decide whether to offer Greece some concessions, on top of what has already been given, or maintain a hard line on the measures.
Greece’s delegation to the conference has no political power, and will not be able to negotiate a deal for the country. They will simply present the plan given to them by the new Government. European leaders are likely to ignore that plan in light of the circumstances, and demand Greece continue with the reforms enacted by the previous Government.
Vague Platitudes: This meeting will be either the 19th or 20th summit on the future of the Euro since the beginnings of the crisis. While some of those meetings led to the European Financial Stability Fund, and Bailouts for Ireland, Spain and Greece, most led to very little but assurances that the next summit would provide a solution.
The most likely outcomes of this summit are some kind of banking supervision, the instigation of Angela Merkel’s European growth fund, and a tax on financial transactions that has been talked about for months. There will also be promises that everything is under control.
It is patently obvious that Europe is not under control, and past promises have proved empty. If there are no hard results from this forum, leaders will take to their podiums heralding accomplishments made in the past, or those that might be made in the future. The word stability is used a lot.
This would be the worst outcome of the forum. This summit is supposed to be the first time leaders have gotten together to discuss the real problems facing the entire Union and find ways to fix them entirely. If they do not, the market will see no political will to save the currency. That will result in severe volatility next week.
Greece Leaves The Euro: This could finally occur at this summit, but it is less likely now than it has been for months. The country elected a government that actively wants to participate in Europe. There are some signs of the new government accepting austerity. It’s not an ideal time to cut them off.
It could happen though, despite how unlikely it is. As commentators have been saying for months it would be better for Greece and better for Europe, though it might create a dangerous precedent.
There is one other country whose departure is possible.
Germany Leaves The Euro: This idea has been building steam in recent weeks. Many analysts have pointed to the internal strength of a European currency that is not tied to the strength of the German economy.
If Germany continues to refuse debt mutualization it could be even more necessary to expel them from the Union, in order to speed that integration.
It remains unlikely, however beneficial it might be. Germany’s strength is not simply economic, it is political. No other country can take the king of leadership role that Germany has in ensuring a strong political union.
Without German leadership there are no front runners in the EU, and nobody left to drive ahead with reforms. There would likewise be very little reason for German taxpayers to continue paying Greek salaries. The technical economic benefits of this might be excellent, but the political realities could be disastrous.
In a more simple sense, Germans do not want to leave the single currency, they believe in the European ideal, and the single currency is a boost to business.
There are many other plausible outcomes from this week’s European summit. The conclusion may satisfy, or it may disgust, investors, but there is a feeling that the crisis cannot go on as it has been doing for much longer. We may have reached the halfway point in the European crisis.