Sarkozy warns of the risk of explosion in Europe

Posted by Paul Barr

Sarkozy warns of the risk of explosion in Europe

Europe had never been more in danger than today, never the risk of explosion in Europe had been so great.” True to his strategy of extreme tension, Nicolas Sarkozy has issued a dramatic warning to all members of the European Union to assume the seriousness of the situation in the euro zone and the need to respond quickly and forcefully to the crisis in the European Council in Brussels . “There will not be a second chance,” the French president said in the hours before the summit, before the delegates of the European People’s Party meeting in Marseille. On the same platform, the German chancellor, Angela Merkel , was more confident in the possibility of reaching an agreement – “We will find good solutions, I am convinced,” he said – but the messages issued in the last forty-eight hours for Berlin have not been less admonitory, coming to suggest that in some European capitals had not taken the measure of the seriousness of the situation.

France and Germany are determined to impose a rapid reform of European treaties, as a means of imposing budgetary discipline in the euro zone, in order to send a strong message to markets. For Paris and Berlin, the technical tricks proposed by the president of the European Council, Herman van Rompuy, to avoid the always difficult and risky reform of the treaties, are not of receipt. In this approach, Sarkozy and Merkel have attracted the complicity of the president of the Eurogroup and Luxembourg Prime Minister, Jean-Claude Juncker, who in an interview published today by Le Monde advocated a limited and rapid reform.

The president of the European Commission, José Manuel Durao Barroso, was also more flexible and, in the same forum in Marseille, was open to admitting a reform of the treaties. But with conditions. Yes to a reform, he stressed, provided that the Member States guarantee that it will be approved and ratified without problems, provided that it goes in the direction of greater integration, that it reinforces European unity and does not marginalize the role of the Community institutions. Something easier to say than to do.

The great political challenge of the summit is precisely to safeguard the unity of the European Union in the face of the crisis. The declared aim of the Franco-German couple is to try to agree on a reform of the treaty assumed by the 27-way already of 28, because tomorrow Croatia will sign its adhesion, which will become effective in 2013, but with the explicit threat that if there is blocking will opt for a restricted agreement to the 17 countries of the euro zone. What would definitely sanction a two-speed Europe.

Several countries resist the reform promoted by Berlin and Paris. But the epicenter of the resistance is in London. Imprisoned between the important anti-European sector of his party and the government pact that unites him with the liberal-democrats, the British Prime Minister, David Cameron, goes to Brussels with a difficult objective: to try to negotiate with his partners some relevant compensation -in terms of the return of sovereignty by Brussels- to support the reform of the treaty, under the threat of exercising its right of veto otherwise. The problem for Cameron is that a solution limited to 17 would marginalize the United Kingdom.

If yesterday it was the German government that spread pessimism about the likelihood of reaching substantial agreements at the Brussels summit, today it was the president of the European Central Bank, Mario Draghi, who has thrown a jug of cold water on the expectations of the markets by denying the existence of a large-scale peripheral debt purchase plan, as some analysts had interpreted his appearance before the European Parliament earlier this week.

“The program is not eternal or unlimited,” Draghi recalled in Frankfurt, after announcing a quarter-point drop in interest rates and announcing three years of free liquidity bar for banks. Draghi had made the same warning in his European Parliament speech, but his precautions went unnoticed.

The ECB is, in the short term, the only hope of European governments to move the euro away from the abyss. “Our objective,” a diplomat explains, “is to impress those who have the capacity to impress the markets.” That is, to the ECB. The idea is to convince him that they are serious so that next Monday, December 12, he will intervene more forcefully in the debt market, although Draghi’s comments this afternoon clearly indicate that it will not be a massive operation. “The spirit of the Treaty is always in our thinking,” the ECB president stressed in reference to the ban on loans to governments that weighs on the entity.

The European Council will also examine another measure to strengthen the eurozone’s response capacity to the financial problems of its partners: lend money to the International Monetary Fund so that it, in turn, leaves it to the countries that need it. The idea was studied last week by the ministers of Economy (about 150,000 million euros are passed) but there is still no unanimity in this regard, diplomatic sources admit. The option that opens the way is that the central banks lend money to the Fund; the option for the ECB to facilitate this increase in resources raises questions in Frankfurt and Berlin.