Only solidarity can save the euro now
Peter Sutherland says a pact to do 'whatever it takes' must replace ineffective conditional rescue
When European Central Bank president Mario Draghi proclaimed that the ECB would do "whatever it takes" to ensure the future stability of the euro, borrowing costs fell for Italy and Spain, markets rallied, and the decline in the external value of the euro was checked.
It remains unclear how long-lasting the effects of Draghi's intervention will prove to be. What we can say with certainty is that Draghi's remarks and the reaction they evoked demonstrate that the fundamental problems of the euro zone are not primarily financial or economic; they are political, psychological and institutional.
International observers took such notice of Draghi's commitment to do "whatever it takes" to save the euro because so many of them have come to doubt other leading European players' commitment to do likewise.
In their own defence, euro zone ministers point to the raft of reforms introduced over the past 30 months. Unfortunately, these reforms have failed to answer unambiguously the question posed by international markets: are the euro zone's largest and most prosperous members absolutely committed to its continuation?
No one doubts that Germany and most other euro zone members would prefer the single currency to continue. Today's uncertainty concerns whether this preference may be overridden by considerations of national politics, or resentment at the slow pace of reform in certain countries.
While the euro zone's richer countries have indeed done much to help their troubled neighbours, they have done so in an obtrusively conditional, transitional and incremental fashion.
The constant need for reassurance, for the limiting of risk to the minimum necessary, provokes a fear that at some point Germany and others will judge their partners' assurances insufficient and the risks run in helping them intolerable. If that happens, the euro's demise cannot be far behind.
The philosophy of control and reciprocity needs to be replaced by one of solidarity. This means a more balanced economic policy within the euro zone, an enhanced role for the ECB, a real banking and financial union, and a road map to partial and conditional mutualisation of legacy debt.
Euro zone leaders have spoken about all of these, but the time has come for unequivocal commitments and a realistic timetable for action.
None of Europe's financial problems would look remotely as challenging today if doubts about the euro zone's future had been dispelled two years ago. In the long run, solidarity is cheaper for all involved, while its absence could become ruinously expensive.
Peter Sutherland is a former EU commissioner for competition policy. Copyright: Project Syndicate