By Alex Pigman, AFP
PARIS — European leaders face difficult decisions in the days ahead on managing the outcome of the Greek election, upholding their credibility on financial discipline to avoid stoking contagion, and making convincing progress toward a grand plan for deeper integration. “We are now in a defining moment for European integration,” European Commission chief Jose Manuel Barroso warned last week.
“Without confidence (on markets) in the irreversibility of economic and monetary union, our prospects are limited.” All attempts so far to end the eurozone debt crisis have failed, analysts say, forcing EU leaders toward a new and uncertain dimension of deeper integration which holds both promises and dangers. The victory in Sunday’s Greek parliamentary election of parties willing to implement the bailout deal provided some much needed relief on the risk of Greece exiting the euro. But with the Greeks likely to push for relaxation of the bailout terms, too much compromise from the eurozone risks its credibility and sparking contagion by encouraging other demands for leniency on painful reforms. Moreover high bond yields show markets are skeptical Italy will avoid a euro-busting bailout, showing European leaders have a huge task cut out for them when they meet next week. Their efforts so far haven’t stopped the crisis. Eleventh-hour bailouts of Greece, Portugal, Ireland and now Spanish banks, all born of panic on the financial markets, in each instance only bought time, before uncertainty quickly returned. The rescue of Spain’s banks, which was supposed to ease borrowing costs to levels Madrid can afford, almost immediately fell flat and, analysts say, may prove to be the last straw for business as usual in the eurozone. The bailout “is just going to delay the inevitable,” said Ben Taylor, a sales trader at CMC Markets, as adding the cost of rescue loans to Spain’s banks onto the country’s debt will only precipitate a full Spanish bailout. The prospect of bailing out the eurozone’s fourth largest country may finally push Europe across the Rubicon. A “patchwork of sticking plasters can only buy a little more time before Europe’s policymakers are forced into some form of closer fiscal and political union in order to save the euro,” said Capital Economics analyst Julian Jessop. Perhaps strikingly amid the current crisis, it is more integration that is being openly called for by key European leaders ahead of an EU summit on June 28-29 at which they will be under intense pressure to sketch out a path to lasting solution. Their diagnosis of the eurozone’s ills is insufficient integration, that the debt crisis is a result of sharing a currency without sufficient controls on the fiscal policy of member counties.