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Last updated: September 9, 2012 6:42 pm

Leaders divided on cure for crisis

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Ambrosetti forum debates euro’s survival

At the Ambrosetti forum in 2010 all the talk was of where the euro was trading against the dollar. At this year’s gathering of European politicians and business leaders on Lake Como the focus was instead on how to ensure the euro’s survival.

Speaker after speaker joined in a paean of commitment to an irreversible single currency and a unified Europe.

Even once-vocal opponents of European monetary union took to the podium to argue that the costs of just a single country exiting the euro were now so prohibitive that policy-makers must do anything to avoid it.

And the message from both speakers and audience was clear: that the EU and its single currency are a necessary condition for the bloc’s member states to compete globally in the 21st century.

But while there was broad agreement on the nature of the malaise afflicting Europe – many spoke, for example, about the “Balkanisation” of the region’s financial system, others of the deep institutional differences between countries – there was less unanimity about the cure.

The announcement, at the start of the forum on Thursday, that the European Central Bank was prepared to buy sovereign bonds in the secondary market, with strings attached, was hailed as a step in the right direction.

One speaker described the reaction – mainly broad smiles – of the group of European policy-makers he was with when they heard the news. “The Germans said: ‘Thank God there is conditionality,” he said. “The Spanish said: ‘Thank God there is liquidity.’ ”

Indeed, despite the negative reaction in the German press to the ECB’s plan, the country’s business leaders were warm in their approval of the move.

They argued, though, as did speakers from government, from European institutions and from industry, for the need for further and stronger policy responses at both national and regional levels.

Mario Draghi, said one, had given a clear message to national politicians – “Get your act together.”

And there was a sense of a new realism about what that implied.

One speaker from a European institution said there was a new mood among national politicians, particularly in the south, a genuine recognition of the necessity for structural reforms and for profound and lasting change.

An uncharitable response might be to ask what took them so long. But now that there is such a recognition there is broad agreement about what that change should consist of, and what steps are required to ensure that the euro has a future.

Banking union, policy-makers at the forum argued, was the first of these. This would require establishing a Europe-wide supervision scheme – an announcement on which is imminent – setting up a deposit guarantee scheme, and a resolution regime to ensure that unsecured creditors, rather than taxpayers, pay the price for future bank failures.

Banking union would then lead towards fiscal union, deeper economic union and then greater political integration.

What was barely mentioned, though, was the lack of popular support for a closer European union, not to mention the huge difficulties in implementing the necessary steps towards it.

Establishing a Europe-wide banking regulator has already proved deeply controversial. And reaching agreement on the ECB’s latest bond-buying proposal took three months – although, admittedly, these were summer months, when even Europe’s most hard-pressed politicians, not to mention its civil servants, made it to the beach.

The fact that time is not on their side, though, is clearly not being entirely ignored by Europe’s policy-makers. But the Ambrosetti consensus was that the ECB’s measures should ease the relentless pressure from the financial markets and buy governments and Europe’s institutions some breathing space in which to implement difficult and controversial measures.

The need for greater political legitimacy for the EU is an often mentioned theme. Indeed, recognition of the challenges ahead was not a worrying absence at Ambrosetti this year.

What was concerning, however, amid the pervasive sense of disappointment that the “European project” had come to this, was a feeling that the impassioned defences of the euro offered during the forum remain convincing words rather than implementable deeds.

The depth of Europe’s problems may, finally, have been recognised, but their real-life solution still seems a very long way off.

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