Finance

3 takeaways from an underwhelming euro summit

PARIS — It wasnt a slap in the faces of Angela Merkel and Emmanuel Macron.

Eurozone leaders on Friday agreed on the minimum steps needed for their summit not to be seen that way.

The German chancellor and French president, who had suggested to their counterparts a list of modest reforms designed to improve the monetary union preparedness for future crises, could only get other leaders to agree on an overdue decision that had long been in the pipeline: giving the fund that finances the winding down of failed banks the backing of the European Stability Mechanism, the blocs bailout fund.

For the rest, the two leaders found out what happens in the eurozone when the fiscally retentive north meets the purse-strings-loosened south, or when the match between the Netherlands and Italy that couldnt happen at the World Cup takes place in the European Council building.

Not much.

Here are three key takeaways from the underwhelming summit:

1. Limits to the Macron method

The French presidents signature proposal of a eurozone budget was the main victim of the leaders gathering. It didnt even get a symbolic nod in their public communiqué.

That was the main bone of contention between the Franco-German side and the 12 governments, which last week published a letter of protest two days after Macron and Merkel had struck a deal at the Meseberg Castle. The French side finds solace in the fact that the joint release refers to the pre-summit letter that Eurogroup President Mário Centeno, the Portuguese finance minister, had sent the leaders on the eve of the summit. But thats only a commitment for finance ministers to keep “discussing all the items” in the letter — which did mention the eurozone budget to say that governments were divided on the matter.

In the coming months, with a new date for further talks now set for December, Macron will have time to reflect on his strategy of engaging in an exclusive dialogue with Merkel to push his ideas through. A year ago, it was one thing to deal with a German chancellor who seemed at the peak of her authority and influence. But its another thing today to deal with a weakened Merkel, who has trouble keeping her own party together, let alone her coalition government or, even harder, the eurozone. The duo composed of the energetic president of a weak economy and the apathetic chancellor of a strong one has proved impotent when trying to convince others to follow their lead.

2. Eurozone still divided but marginally stronger

The resolution fund backstop, the possible strengthening of the ESM, and even the confirmation of a decision to soon start speaking about how to speak about a pan-eurozone deposit guarantee insurance, are elements that help some policymakers and pundits to see the glass half-full. And as limited as it is, the mini-reform agreed on Friday marks the first time the monetary unions leaders have agreed on reform without being forced to do so by a severe crisis.

And theres at least a pledge to keep discussing. Some of the future steps may be easier to agree on when experts get into the technical details, far from the daily rumble of politics and the need of national politicians to keep posturing for or against. The push for significant reform may have been the victim of the importance and high visibility Macron gave to his project early on in his presidency.

3. Little time left

Even in the optimistic scenario where northern countries would be brought around to the Franco-German view in exchange for a few concessions, and the Italian government would start to behave in a less erratic way in European negotiations, there is little time left for eurozone leaders to agree on real reforms in the months to come.

In December, the European Parliament election will only be five months away, and that guarantees that the most potentially controversial items — such as the common budget or the deposit insurance scheme — wont be on the agenda. Not that governments think those are bad ideas. But they wont want to give populist opponents something to beat them with during the European campaign. For all practical matters and in spite of the “important symbolic” steps touted by the optimists, what we saw on Friday was all that well get for some years.

Original Article

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