EUROPE HAS ONE LAST CHANCE
Analysis: The whole world is watching. As European leaders gather to search for a way out of the single currency zone's debt crisis, the Old Continent risks pulling the world into recession, as a relatively strong Germany must find common ground with Europe's growing list of weak links.
PARIS - In the never-ending saga also known as the euro zone crisis, we have grown accustomed to high tensions, disagreements and constant new surprises. No, the novelty is elsewhere: it’s the attention that the rest of the planet is paying to the Old World.
In the past couple of days, politicians in the United States, China, Japan and even Singapore, not to mention the International Monetary Fund, have expressed their concern, and urged Europeans to find a way out of the debt crisis. If they fail to do so, Paris and Berlin have real reason to fear, as Washington, Beijing and London will transform the upcoming G20 meeting in Cannes into a public trial of the euro itself, and may even somehow look to take the reins in determining the currency's ultimate destination.
How did we get here? We should remember that, in the past couple of weeks, the crisis has grown larger than just Greece, or even the uncertainties about Italy and Spain. In reality, the whole economy has been torn to pieces and thrown into panic. As in 2008, the confusion started to gum up the works of the financial industry and stifle investment. Repatriation of dollars by American investors undercuts the work of their counterparts across the Atlantic. While one bank has a hard time covering a country’s purchase of an Airbus jet (in dollars), another bank might have trouble lending money for oil exploration. Without a clear and united response, there is a high risk that a vicious cycle will kick in.
Where are we? For the past 18 months, promises of a “global and sustainable” solution have been made so many times that our confidence in them has evaporated. There are major differences between a Germany that is taking charge and wants more than just words, and a fragile France, weakened by its own public finances -- though those differences are hidden backstage. And we still haven’t found a way prevent the fire from spreading, even if the two most influential euro zone capitals have similar stances on the recapitalization of the banks (108 billion euros) and debt forgiveness for Greece (around 50% of that country's debt). And finally, they agree that Silvio Berlusconi should be forced to act... or leave power.
By Wednesday night the euro zone will tell the world if it is able to resolve its crisis. Everyone is waiting for the historic meeting without much optimism. But if they meet their goal, it may well be time to give Europe a new project. After the Franco-German reconciliation, the common market, the single currency and EU enlargement, now may in fact be the first time since 1957 that the European Union doesn’t have anything to do other than manage emergencies. This is anything but trivial
The meeting has been canceled for lack of agreement on what to do.