Britain goes it alone, while Europe muddles on
So, another week, another much-hyped European 'summit to save the euro'. There must have been half a dozen in the past year alone. I think we are starting to see a pattern....
Here we go again
We get a period of market turmoil, where the yields of the bonds from the latest country to be in the spotlight rise to unsustainable levels, stock markets fall in panic, pundits predict the imminent end of the world, and the eurocrats rush to organise a last-minute summit.
The summit takes place, to much anticipation and media attention. Merkel, Sarkozy et al. debate into the early hours of the morning, and an agreement is hammered out. It is announced to the world's media with a great fanfare as the solution we have all been looking for.
Stock markets bounce in a burst of optimism, only to tumble once more as the pundits who have chewed over the agreement realise it is not such a ground-breaking deal after all and denounce it as a 'sticking plaster'. And so the cycle continues.
Throw in the overthrow of a couple of governments, some strikes and riots, and the background of a growing economic malaise and you have the eurozone crisis of the past year.
The question is, is it different this time?
The latest deal
Last week's deal is basically a first step towards a fiscally-unified Europe, which 26 of the 27 members of the European Union have agreed to, the odd one out being of course good ol' Blighty.
No doubt David Cameron, fearful of civil war within his party if he did agree to the deal, has decided to veto it. But by doing so he has infuriated his Liberal Democratic coalition partners. Nick Clegg said the veto was "bad for Britain" and could leave it "isolated and marginalised". I think it raises a serious question about Britain's long-term future in the European Union.
Here are the basics of the deal.
There will be budgetary integration. There will be a new 'stability union' where member states will run structural deficits below 0.5% of GDP. If a country breaches a 3% of GDP limit, it will be fined.
There will also be "rapid deployment" of the €440 billion European Financial Stability Facility (EFSF), while the European Stability Mechanism (ESM) will have a budget of €500 billion, and should come on stream by July 2012.
"What on earth's the difference between the EFSF and the ESM?" I hear you cry. Well the ESM is basically the shiny new, permanent version of the EFSF, which was always seen as a temporary measure.
There is also a green light for the eurozone to provide the IMF with up to €200 billion in bilateral loans, which could be used to extend precautionary credit lines to Italy and Spain, if we did indeed enter Credit Crunch part II.
Alongside these measures agreed in the summit were steps taken by the ECB. As well as cutting rates by 0.25% to 1%, it announced a raft of measures to support the eurozone financial system, making it easier for banks to borrow from the ECB, and doing its best to get banks lending again.
It's a marathon, not a sprint
So, is it different this time? Well, I don't think it is. And this has been quickly realised by the eurosceptic British press, who have denounced this deal as yet another sticking plaster.
But, having written about Angela Merkel recently, I am beginning to understand how she thinks. She has never been one for grand, sweeping gestures. She is naturally cautious and works by building consensus.
Merkel said that the euro area crisis would take years to resolve. I don't think this was some throwaway line. She really thinks that we will still be discussing the eurozone crisis in 2013, 2014 and perhaps beyond.
She does know that a solution is needed, but she also knows that, if imposed immediately, it would be unpalatable to the German electorate. So she is inching towards that solution, cautiously but deliberately, whilst doing her best to bring the German people along with her.
At each summit, instead of bringing out the "big bazooka" or creating "the grand bargain" she just does enough to stave off disaster for another few months, edging towards the solution whilst getting the continued buy-in of the Germans.
And, in her viewpoint, it is working. For a leader who has had to push through a raft of tough measures, she remains surprisingly popular with the Germans.
So, this summit was not really the make-or-break, do-or-die meeting it was hyped up to be. However, it is important as it takes the first steps on the path towards greater fiscal and political union. If Merkel is right, there will be no sudden, dramatic moment when we can proclaim that the euro is saved. Instead, we could -- I'm afraid -- be discussing this crisis for years to come.