Dawn News

Crisis pushes towards two-tier Europe

THE stakes are rising again in the euro crisis. A big row between the eurozone and the IMF over how to cut Greece some slack, endless Spanish prevarication, egged on by Germany, over whether to ask for a bailout, and deep differences over how to use the bailout funds mean that the promise evident since June is evaporating.

But when EU leaders meet next week in Brussels for the first summit, there will be no breakthrough, according to a minister closely involved and other senior officials.

Spain will not ask for a bailout, it is said. The new Greek dilemmas — over whether to extend the rescue programme by two years, how to plug the resulting funding gap, and what to do about Athens’ dissolving debt sustainability targets — will simply be shelved, delegated to finance ministers next month.

Instead of these immediate pressing issues, the summit is likely to be taken up with German-led plans for greater fiscal rigour, discipline and surrender of national powers over fiscal and economic policy, as well as a fight between the 17 eurozone countries and the 10 non-euro members, Britain to the fore, over how powers are wielded at the proposed new eurozone banking supervisor, the ECB.

The new German disciplines, with some of the rough edges smoothed in the “exploratory” proposals from Herman Van Rompuy, chairing the summit, are mostly stick with a little bit of carrot.

They envisage eurozone governments committing to structural reforms of their labour markets and welfare systems in enforceable “contracts”. The carrot is that this would be accompanied by the creation of a separate eurozone budget (not to be confused with the EU budget) which would be small (maybe 20bn euros) and used to cushion the impact of the structural reforms. That’s the German idea. The French are demanding that the eurozone budget be spent on relieving “asymmetric shocks” such as subsidising the costs of sudden surges in unemployment.

Van Rompuy’s proposals try to please both sides. Not so much a two-speed Europe, then, as a two-tier Europe, with the eurozone countries increasingly shifting towards a more compact and cohesive federation despite lots of problems and conflicts. — The Guardian, London

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