Deal done, but what it means to be decided

For months, the Germans have said Europe needs a new treaty. But they sounded like people in a burning house talking about installing a sprinkler system.

Sat, 30 Jun, 2012 - 01:00

Ann Cahill

Both EU treaties and the German constitution forbids doing what everyone said was necessary: Share the debt of the richest and poorest countries to make it affordable for everyone.

Austerity was the only game in town, but everyone knew it was not working. As the new legislation subjected national budgets to EU recommendations, the French began to balk.

Francois Hollande ran for the French presidency on a ticket of growth being the solution to the euro’s woes — and won. Then he had a lucky break. Spain and Italy were targeted by markets as Spain’s small banks bit the dust after years of warning, and dragged Italy’s massive debt into the spotlight.

The leaders of the second, third, and fourth largest eurozone countries formed themselves into a formidable team, having their own private meetings in Paris.

France upped the odds when they insisted on removing all mention of handing control for national budgets to Brussels from the document for the future of the euro, but left in all the bits that commit Germany to share everyone’s debt.

The outcome of the dinner in Brussels between Hollande and German chancellor Angela Merkel was a closely guarded secret. They each agreed to their ends of the bargain — with France agreeing to abide by the budget rules, Germany promising debt mutualisation, and both talking about some kind of federal EU with banking, fiscal, and political union in 10 years.

To get to there, however, they had to listen to horror stories from Spain and Italy. However, by then their demands were well underway to being met as the euro working group — experts from the member states’ finance departments — were joined by the prime ministers’ political advisers. Eight hours and three drafts later, the deal went to the leaders of the 17 eurozone countries, meeting over dinner. What it all means, however, is yet to be decided.