Summit by summit, EU slouches slowly toward unity

October 27, 2011 - 12:35 PM
France EU Financial Crisis

European Union President Herman Van Rompuy addresses the European parliament in Strasbourg, eastern France, Thursday, Oct. 27, 2011. European stock markets shot higher Thursday as investors waded into riskier assets, emboldened by EU leaders' pre-dawn agreement to slash Greece's massive debts. (AP Photo/Christian Lutz)

BRUSSELS (AP) — The European Union's plan to solve the worst financial crisis in its 50-year history may prove the tipping point for the continent's political journey from a collection of sovereign states into what some leaders hope will be a single world superpower.

The struggle to keep the euro together has been creating huge tensions between countries, causing some to believe the currency union could not last much longer.

But in the early hours of Thursday morning, EU leaders reached an agreement that suggested they are so committed to their common currency that they would rather give up some of their sovereign decision-making powers than see their economic union unravel.

"Last night was a crucial step," EU President Herman Van Rompuy told the EU legislature Thursday.

And that crucial step involves, in part, giving EU headquarters in Brussels some budgetary powers that have so far been the prerogative of national capitals.

For a start, the leaders of the 17 nations using the euro put Greece and Italy in budgetary straitjackets for monetary mismanagement, making sure that every retiree in Milan and unemployed construction worker in Athens now knows that the key to their future may no longer lie in their nation's capitals but in faraway Brussels.

What started as a joint currency ten years ago, meant to facilitate tourism, promote trade and discourage competitive devaluations, has been turned by the financial crisis into a wedge to enforce the cooperation the proponents of a fully united Europe once envisioned.

"Monetary policy alone is not enough to deal with the situation," Van Rompuy said. "We cannot have a common currency, a common monetary policy, and leave everything else to the states involved. That's why the 17 will have to go further."

Even if those fighting words lead toward more euroskepticism in some member nations, it may in the end matter little. The leaders in charge of the weakest nations have looked over the edge of the financial abyss, and were happy to fall back into the forced embrace of the wealthier nations. United they may stand. Divided they would surely fall.

Rich countries like Germany and the Netherlands never hid their disdain from profligate neighbors but realized that cutting them loose would have undermined their joint currency — and, even more, their national economies.

At the next summit, on Dec. 9, the EU leaders will assess a plan on how to reach that degree of economic governance. They say they may even consider treaty changes that will take more national sovereignty away from national capitals. With a market of 500 million citizens and economic juggernauts like Germany and France, the EU has the potential to remain a global power for decades to come.

Two things might undermine this scenario. Markets, which were buoyant on Thursday, might turn against the EU again if countries come under more fiscal pressure. And elections might intervene.

"We have saved the eurozone and that's the good news and that's why the markets are reacting positively," said Marc Touati, chief economist at Assya Compagnie Financiere in Paris. "But unfortunately we have only saved it temporarily. In other words, in a few months, the same problems will return."

The leaders of Italy and France are weak, but new leaders there would not necessarily harm the integration project.

Italian Premier Silvio Berlusconi only just averted a government collapse Tuesday over emergency measures demanded by Brussels, an issue so touchy that a fist fight erupted in parliament. If Berlusconi goes down, however, a new coalition might well be equally pro-EU.

The same goes for France. Sarkozy is down in the polls ahead of the May presidential elections, but Socialist challenger Francois Hollande could well take the same line if elected to take Sarkozy's.

And the diplomatic pressure in Europe often has the effect of turning opponents into, if not backers, at least neutral bystanders.

After pledging to let British voters have a say in any further expansion of European powers when he came into government, U.K. Prime Minister David Cameron was forced into an embarrassing scramble this week to block a proposal to put the future of Britain's entire EU membership to a popular vote.

At the summit, he acknowledged that "it is very much in Britain's interest that we sort out these problems" of the euro crisis.

As one of the 10 EU nations outside the euro-area, Cameron has had the luxury to stand somewhat on the sidelines. Britain too has had to recapitalize its banks over years past, so placing all the blame on the euro and Brussels often misses the point.

At the grass roots level, though, the issues are different.

In Athens, prominent left-wing deputy Dimitris Papadimoulis said this week's agreement would doom Greeks to a deeper recession.

"The deal puts Greece in a eurozone quarantine," he said. "We are now locked in a system of continuous austerity, haphazard privatization, and continuous supervision by our creditors."

He also noted an inherent conflict of interest in the European debt plan.

"Those who monitor us do not have our interests in mind. Their priority is that we pay back our loans," Papadimoulis said.

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Elena Becatoros in Athens and Geir Moulson in Berlin contributed to this report.