The markets advanced and then retreated in anticipation of Friday's summit of European leaders that's supposed to come up with a solution to the now two-year-old debt crisis on the continent. It's doubtful any hard decisions will be made or that credible solutions will emerge from this latest gabfest.
That's because the options on the table don't deal with the fundamentals. Instead, their first order of business will be to enable more bailouts. A new $666 billion fund, the European Stability Mechanism, would be set up to work with the currently existing European Financial Stability Fund (EFSF), which has committed $253 billion to Greece, Ireland and Portugal so far. That would leave the hybrid EFSF-ESM some $1 trillion to bail out the next upside-down country in line for a handout.
It simply won't be enough money, given the region's current economic condition. If Italy and Spain go under, they'll need $1.5 trillion, or more. The bailout idea has other problems. The market has shown little willingness to buy instruments that could leverage the EFSF's funds. With economic growth stagnating, it will be a hard sell asking healthier nations to contribute to the International Monetary Fund so their cash will be spread around to the failed economies.
Which brings us to the German option: a new treaty that would set tougher fiscal-discipline rules, including almost automatic sanctions on countries with deficits or debts in excess of mandated limits. This arrangement would get around the German Constitutional Court's objection to the issuance of eurobonds. It comes with a downside that adoption would be a long, drawn-out process as treaty modifications would be subject to referenda in some member countries.
Unsurprisingly, Eurocrats like European Council President Herman Van Rompuny are arguing for a quicker process. Speeding things up means putting bureaucrats, not voters, in charge. That's particularly troubling because they plan not only to change the rules on fiscal discipline but also set a "common legal framework" for the 17 countries which use the euro. The idea is to push toward common financial regulations, corporate-tax structures and labor-market rules. The deal would include their long-sought financial-transactions tax (opposed by Britain) and dubious "growth-supporting policies."
The free movement of labor is one of the four freedoms at the heart of the European Union. Inevitably, whatever is decided by this treaty modification will affect all EU member states, not just the 17 in the eurozone. British Prime Minister David Cameron is rightly alarmed at the prospect of fast-track treaty changes without parliamentary or popular vote approval. He's going to Brussels prepared for battle.
Fiscal austerity will be necessary if the EU is to emerge from its debt crisis, but the "changes" being advocated sound like business as usual. There can be no solution without acknowledging the real causes of the problem: too much spending, crony capitalism and failure of oversight. Concentrating even more power in the hands of bureaucrats is a bad idea, especially when these are mostly the same people who created the crisis in the first place.
Nita Ghei is a contributing Opinion writer for The Washington Times.
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