“We’re still in a holding pattern where it’s very very difficult to figure out what’s going to happen over the long run. I’m don’t think [the treaty] is going to do very much,” says Henry Farrell, a political scientist at George Washington University, who believes the new treaty is simply a reiteration of an existing agreement and a political move to support the European Central Bank’s large interventions to prop up the EU bond market. Ultimately, Farrell says that the biggest obstacle to a real resolution is not only political, but increasingly electoral-driven as both Merkel and Sarkozy are facing voters who are unhappy with bailing out the distressed southern countries in the EU. “They want the timing of this to be as late as possible, and as much on German terms as possible,” he concludes. “I don’t see clear path toward any grand bargain any time in the next couple of years.”
The political and electoral pressures may be part of the reason why Germany has (once again) taken an exceptionally hard-line in its current negotiations with Greece, with one proposal demanding that the country temporarily give up direct control over its own taxes and spending. And if the Greek talks collapse, “that could lead to another spiraling crisis very quickly”--both politically and economically speaking, Farrell concludes. Altogether, he believes that the continent is still plagued by political deadlock and uncertainty--a situation that’s taken various twists and turns but hasn’t fundamentally changed since I spoke with Farrell at the end of September. The bottom line, in other words, is still the same. “Nobody’s quite sure what is going to happen, the crisis is being held off, but there are no guarantees,” Farrell sums up.
Tu Packard, a senior analyst at Moody’s, agrees that the future of the EU remains in flux and is similarly disheartened by the tone of the negotiations in Greece. “The level of uncertainty is still very high,” says Packard, who believes the German approach toward the Greek debt restructuring talks has been counterproductive. “I’m not sure what’s on their minds...it’s almost as if [Germany] did not want it to happen,” she says. “It’s surprising that some of the parties involved would want to heighten the level of bitterness at this extremely fragile state of things.”
Packard adds that she was encouraged by the ECB’s move in December to inject liquidity into the markets and ward off a credit crunch. “The ECB did come to the rescue on that and has taken clear actions in terms of supporting the financial sector,” she says. But like so many of EU interventions over the past year or two, the ECB’s move was a temporary measure that simply kept the continent afloat without getting to the heart of the problem. Packard adds that the overwhelming focus on austerity, instead of growth, could still be a major obstacle to the continent’s recovery, as Ezra has explained. As such, Packard--who had been becoming more optimistic in recent weeks about the EU’s prospects--says her outlook has clouded over once more. She summed up her feelings in one word: “negative.”