x Abu Dhabi, UAESaturday 22 July 2017

Euro zone's stay of execution will face political test

The euro zone pushes through another "last minute" deal, this one fine in theory but almost impossible in practice.

Stock markets climbed slightly on weekend news of plans for greater integration for 26 of the 27 European Union countries, but then resumed their relentless recent slide. The euro sank. Markets, in other words, were not impressed with the deal.

No wonder. After a dozen crisis meetings, the 17 euro-zone governments still have the same problem: over €1.1 trillion (Dh5.5 trillion) in debt to be repaid or renewed in 2012.

The main proposal 26 governments accepted, with varying degrees of enthusiasm, will not directly reduce that frightening sum by so much as €1. What the leaders agreed upon is a castle in the air, a fine shimmering ideal in which "budgets shall be balanced or in surplus" and each state will amend its constitution to guarantee this. The European Court of Justice will police enforcement and unspecified "automatic consequences" will punish any state which fails to balance its budget.

True, the Maastricht Treaty of 1992, which formed the EU, made solemn promises about budget balance; when these were ignored, a 1997 "Stability and Growth Pact" reaffirmed them. Deficits just kept on growing.

The new agreement, in other words, has all the sincerity of a sudden repentance at the foot of the gallows.

Worse, it amounts to 26 political time bombs, at least some of which are bound to go off as the leaders take home from Brussels their promises to amend their constitutions. David Cameron, the British prime minister, refused to go along with the deal, a decision which may help him politically even though his objection was on behalf of UK banks.

In democracies, constitutions are changed only laboriously; often super majorities of one kind or another are needed. In every EU language we will now hear angry denunciations of politicians surrendering sovereignty to bureaucrats in Brussels.

To be sure, something along these lines appears to be required if the euro is to survive. Euro-sceptics, and not just in the UK, have been saying for years that the euro zone must become either more integrated or less; that is, that a common currency demands nearly identical fiscal policies.

Now Europe has reached the stage of the old warning: "We have to all hang together, or we'll all hang separately." But after centuries of national sovereignty, selling sudden sweeping reductions in budget autonomy may prove to be an insurmountable challenge.