Europe's new debt-crisis plan may get past the immediate crisis, but a decade of austerity and unhappy voters lies ahead; there will be many more crisis meetings.
More political crises in store for euro zone
Stock markets jumped yesterday on news that a deal had been reached to shelter the euro - and the global economy - from the consequences of years of reckless lending and shameless borrowing. Eurozone leaders assembled in Brussels ended their meeting with a generous round of self-congratulating optimism. "The results will be a source of huge relief worldwide," said France's President Nicolas Sarkozy.
We take a less exuberant view of this last-minute accord. Mervyn King, the governor of the Bank of England, noted on Tuesday that a deal in Brussels would "create a year or possibly two years' breathing space" and even that may be optimistic. This was one step on a long road.
Europe's big banks and some others grudgingly agreed to settle for 50 per cent on Greek debt, a loss estimated at perhaps $70 billion (Dh257 billion). To check fears about liquidity, European leaders also injected $210 billion into their banks. And they beefed up Europe's standby bailout fund to $1.4 trillion.
All this may keep the wolf away from Europe's door for now, but at this level, finance is a branch of politics. This deal staves off an immediate crisis of confidence in the euro zone, and the debt writedown prevents an outright default by Greece, but the measures do little to address the basic problem: the euro zone remains an unwieldy economic beast pulled in different directions by the vagaries of its members, be they angry German voters or unruly Greek protesters.
There is a fundamental flaw in the euro zone: it is a fully integrated economy supervised by 17 not-at-all integrated finance ministries, and now it is also hounded by the unstoppable forces of global markets.
Accordingly the trouble, when it comes, threatens to be on the political side. This week Angela Merkel, the German chancellor, told her parliament that Greece's long return to fiscal sobriety will demand "permanent oversight". But George Papandreou, the Greek prime minister, was on a different page, hailing the Brussels deal as "a new era".
The most optimistic scenario now requires a decade of unremitting austerity and deleveraging, as leaders try to reconcile clashing national expectations inside and outside the euro zone, all the while watching for unpredictable new shocks.
At best, voters in Europe, the US and elsewhere will accept all this with ill grace. At worst, anger over perceived financial injustice will topple governments, roil the social order and thrust forward leaders with little interest in the common international good.
Brussels may be breathing a sigh of relief, but the rest of us must expect many more national and international crisis meetings.