At least one of the big fixes could start earlier: a banking union that would far more deeply integrate the financial systems of the 17 nations of the euro zone, with the hope that all 27 members of the E.U. would ultimately join. Fiercely independent Britain, which maintains its own currency, has already said it would opt out.
The plan, which European officials said could be operational in about a year, is aimed at boosting market confidence by giving the independent European Central Bank the role of regional bank supervisor, allowing the ECB to override the regulators of national governments. Other parts of the plan involve a type of regionwide deposit insurance to shore up trust in the banking systems of weaker nations, and a new euro-zone-wide structure for the liquidation of failed banks.
Sending a message
Many of the suggestions have been circulating for a while, including the issuance of collective debt, often referred to as “eurobonds,” as well as the establishment of a regional banking union. Though few were surprised by the report — critics have been calling for some of the steps outlined Tuesday since before the advent of the euro — the collective list of proposals sends the clearest message yet from E.U. officials that members must accept far-reaching changes if the common currency is to survive.
Significant details still needed to be worked out, including which banks would fall under regional supervision and how the deposit insurance plan would be funded. And some analysts warned that European leaders should move more quickly to establish the banking union, as a year-long delay could test the patience of financial markets.
Those concerns left investors bracing for the likelihood that the summit starting Thursday will not produce significant progress toward resolving the region’s 2½-year debt crisis. There was no indication, for instance, that German Chancellor Angela Merkel had dropped her opposition to a number of short-term measures being floated by Spain and Italy to halt the investor panic in those nations, where government borrowing costs have soared to dangerous levels.
In fact, as has happened repeatedly at past summits here, European leaders appeared divided by competing visions of crisis management — with Germany urging a methodical pace focused on major changes to the euro zone while rejecting the quick remedies proposed by its harder-hit neighbors.
Adding to the pressure for short-term measures, Spain on Monday made its expected request for a bailout to aid its ailing banks — and was promptly hammered when 28 of those banks were downgraded by the Moody’s ratings agency.
Also Monday, tiny Cyprus announced that it would become the fifth country in Europe to seek a lifeline.
“I don’t think we’ll get anything that sweeping this week,” said Sebastian Dullien, senior policy fellow at the European Council on Foreign Relations in Berlin. “There had been expectations of a breakthrough, but Germany is not ready to take the steps that are necessary, or at least its conditions are strict enough that the other countries are not yet prepared to meet them.”
Finance ministers from Europe’s four biggest economies were set to hold talks in Paris later Tuesday to discuss the summit agenda, with Merkel and French President Francois Hollande scheduled to meet there Wednesday night.
The most tangible short-term agreement shaping up ahead of the summit was a French plan to pump $162 billion in E.U. funds into growth and jobs. But analysts were already cautioning that only about $12.5 billion of that amounted to new cash, with most of it coming from a reshuffling of existing funds. Also, analysts warned, the money could be spent over a number of years and spread so thinly across the region that it could have only limited impact in hard-hit countries such as Greece, Italy and Spain.
“The money for growth is nice, but it is not going to fix the euro-zone crisis,” said Jean Pisani-Ferry, director of Bruegel, a Brussels-based think tank.
Nevertheless, the report issued Tuesday by European Council President Herman Van Rompuy, European Commission President Jose Manuel Barroso, Eurogroup President Jean-Claude Juncker and ECB President Mario Draghi contained fairly radical ideas for how to reshape the euro zone, even envisioning a pan-European finance ministry that could hold sway over the region’s budgets.
The proposal appeared to bow to the will of all nations, offering the Germans something they especially want — a central European authority with the power to rewrite the budgets of nations that overspend and overborrow. And France, Italy and Spain could take heart in promises that the euro region might consider issuing collective debt. Such eurobonds would stand the might of the German taxpayer behind the weaker countries that share the euro, lowering the risks for investors and bringing down the borrowing costs for a string of nations.
But leaders this week still have to address the key questions of which measures to endorse and how quickly they could implement such major changes. Analysts pointed out that several of the ideas required revisions to treaties or even the drafting of new ones.
And the Germans were quick to criticize Tuesday’s report as too blunt in calling for collective debt without giving details for reining in excessive spending in the euro zone.
“Parts of it read like a wish list,” German Deputy Foreign Minister Michael Link told reporters before a meeting in Luxembourg, according to Bloomberg News. “The report is important, but it isn’t a decision.”