x Abu Dhabi, UAEThursday 27 July 2017

Economic crisis needs Europe to act as one

Even Germany is starting to show signs, as it must, of coming around to the idea of new eurozone bonds. The alternative, after all, is the demise of the euro.

Slowly but surely, Europe's leaders are steeling themselves to do what must be done to save the euro, which has been the cornerstone of European prosperity and integration for more than a decade. This action is essential for the European and world economies, but will have profound political results.

Under the lash of world markets even France now seems to have softened its opposition to a new "eurozone bond" - one issued by the European Central Bank (ECB), backed not by one country but by all eurozone members. Germany remains the firm holdout, but even there exporters, other trade groups and some members of Chancellor Angela Merkel's own party say they see the wisdom of co-operating with the inevitable. They understand that the collapse of the euro, which is the most likely alternative, does not bear contemplation.

Officially Mrs Merkel's meeting yesterday with Nicholas Sarkozy, the French president, did not have eurozone bonds on the agenda. But the two can have had little else to discuss, for their arsenals are empty.

European integration has left French banks deeply exposed by loans to Greece, Portugal, Spain and Italy. Corrosive doubt about Greece's financial stability, not to mention Portugal's, has eaten into investors' confidence. The European Financial Stability Facility, the eurozone's bailout fund, is not big enough to rescue Italy or Spain. In this crisis of confidence in governments, stalling must now end.

Agreement on eurozone bonds will likely take weeks; domestic political calculations are no doubt fuelling Mrs Merkel's reluctance, as are poor economic growth numbers released yesterday.

And yet even if consensus is reached a eurozone bond is no panacea. It would entail unprecedented centralisation of budget and tax policy in the European Union, a bitter pill to nationalists everywhere.

Further, this new level of integration would require much more robust enforcement than the previous European rules, which Greece and others skirted with ease.

German voters, like the hard-working ant in the fable, quite reasonably resent having to rescue the lazy and improvident Greek grasshopper. Mrs Merkel will have a selling job to do.

But she and the German people, schooled in the economic tumult of the 1920s and 30s - and what came after - understand the need for economic stability. She can make the sale.

The euro may yet turn out to have been poorly conceived, as its critics said all along. And Europe's mess is giving pause to other aspiring monetary unions, the GCC closest to home. But right now, the only way out of this mess is through more integration.