Crunch time

The eurozone has been playing catch-up with the debt crisis for some 18 months now. Each special summit has been followed by the bitter recognition that the measures taken still haven't been enough to calm the financial markets.

The recipe until now has remained more-or-less the same: states threatened by bankruptcy have been offered financial aid and more and more money has been pumped into a kind of firewall to protect other states from entering the danger zone.

Even though the EU has issued warnings about budget discipline and fiscal harmony, until now the first line of defense has always been to reach for the purse strings. For the first time, the 27-member union is attempting to tackle the causes of the crisis.

As a dominant force in Europe, German Chancellor Angela Merkel has managed to push through most of her key aims. Debt limits, budget inspection and sanctions for breaking the rules, which can be imposed only with a qualified majority. All that is really long overdue.

The stability pact already demands precisely these disciplinary measures. The problem is: almost no one has stuck to these rules, not even Germany. Only now at the peak of the crisis, have the governments agreed to submit to such constraints.

The fact that the United Kingdom refused to back the tax and budget pact and that the UK was alone in rejecting a treaty revision, does not pose a huge threat to the fate of the euro.

The other states may all agree to club together to revise the treaty. But the move leaves the British people extremely isolated, an isolation that they may well soon regret. The British economy is dependent on the eurozone, although the government will no longer have any influence on many decisions which directly affect them.

The European institutions are in some way "victims" of the summit deal. They would have been fully included in any treaty revision. Now their role is more curtailed. But Merkel and French President Nicolas Sarkozy stressed that the European Commission, the European Council and the European Parliament had not been shoved to one side.

We will have to see whether that is in practice the case. Until now at least, the debt crisis has led to power being taken away from EU institutions and taken up by the biggest EU states, notably Germany.

A weak point of the summit is the largely unanswered question of how we continue in the short term. Because even if it's a positive thing that the EU is finally getting to the root of the problem, the deep crisis remains.

It will take months for the new budget rules to come into force. In the short term, the EU states want to make 200 billion euros available to the International Monetary Fund, so that it can intervene.

But if Italy and Spain get into serious difficulty in the coming weeks, which is highly possible, all the current sources of financial aid would be very quickly exhausted. In such a situation the European Central Bank could step in with theoretically unlimited means.

If that were to be a temporary measure, there is little to argue against. Merkel, even though she is officially opposed to such a drastic measure, could easily say: the ECB is an independent body. European Central Bank President Mario Draghi would know then what was expected of him.

Author: Christoph Hasselbach / ji
Editor: Andreas Illmer