The Euro crises keeps dominating the news.  Gloom and doom result in predictions that the end of the Euro is near.  Many pundits in the media seemed to have lost the compass of how the crises can be solved.  It adds to the uncertainty and fears of people in Europe about their future.  This ‘angst’ nourishes anti-European resentments which diverts attention away from the core issues that need to be resolved.  The forthcoming European Summit of December 8th and 9th in Brussels should end the ‘too little too late’ approach of the EU crises response so far.  This approach, (the ‘bazooka’ that turned out to be a ‘water pistol’), did nothing to restore the confidence of the financial markets in the Euro.  It bought time while the contagion continues spreading, adding each day to the cost of solving the crises.

Financial ministers of the Euro zone meeting last night, persisted in this failed approach by trying to dress up the water pistol by turning to the IMF for help rather than to solve the crises themselves.  It is shameful that the biggest market in the world turns to the IMD for assistance while failing to take steps that are within Europe’s own means and authority, provided the political will is there.

Turning to the IMF will come at a price about which nobody talks.  The BRICS countries (the emerging and booming economies of this world) will only come to the rescue at the expense of European influence at the world stage.  Not clever if you have Europe’s long-term economic and political interests at heart.  And yet, the EU could very well solve the crises next week if it would agree on a ‘grand bargain’.

This bargain is basically trading strict national budgetary discipline enforced by EU control for the European Central Bank (ECB) to act as lender of last resort for the Euro.  When all is said and done, only this outcome will restore the necessary trust in the Euro.  The two sides of this bargain are the two missing links when the Euro was launched in 2001.

The Euro functioned well and became a success under the fair-weather economic conditions that prevailed until the credit crises hit the financial system after the collapse of Lehman Brothers in 2008.  The structural deficiencies under which the Euro was introduced however, no common EU economic and fiscal policies and a restricted ECB role focusing on price control to keep inflation in check, did not stand the stormy-weather conditions under which the financial markets operate since 2008.

Hence, Europefinds itself at the abyss and needs to take the decisions which were left outstanding at the introduction of the Euro and turn the Euro zone in a fully fledged monetary, economic and fiscal union through enhanced EU political union.  There is no
other way if Europe wants to maintain its position at the world markets.  An integrated European market can simply not function with a reintroduction of 27 different currencies.  It would be foolishly putting the clock backwards.

At her recent party congress of the CDU, Angela Merkel showed the road forward by stating:  ‘’Europe encounters the heaviest crises since World War II.  The answer is more Europe, not less.  The political union needs to be completed step by step.’’
Yesterday, the Polish Minister for Foreign Affairs, Radoslaw Silorski, aptly expressed his concerns about the Euro crises as follows:  “I maybe the first Polish Foreign Affairs minister to say so, but it is as it is:  I am getting more concerned about the lack of German action than for the German power.”

Much preparatory work has been done meanwhile by the countries hit by the Euro crises to ensure that their budgets will balance within the fixed targets, that their sovereign debts shall be reduced and that structural reforms are implemented to enhance their
economic competitiveness.  In addition, the European Commission prepared and the European Parliament approved new Community budgetary oversight and disciplinary powers (the ‘Six Pack’) which guarantee that all Euro zone countries become more ‘German’ in future in the management of their budgets, debts, economic and fiscal policies.

This new European legislative framework renders the moral hazard argument invalid; which is: when the ECB would act as lender of last resort, the Euro zone countries in difficulties would no longer have an incentive to implement the agreed structural reforms.  One may argue that the proof of the pudding is in the eating and that these countries first have to demonstrate their new German rigor in practice before the ECB would take up its responsibility to guarantee the Euro.  But waiting will not restore the trust of the markets in the Euro and could well result in its collapse.  At what price for Europe, includingGermany, would that come?

One may ask what the value of the ECB actually is if it is a central bank that cannot come to the rescue of its own currency?  The ECB is often excused for not adequately interfering because of a German fear for inflation based on the trauma of the Weimar
Republic nearly 100 years ago.  Obviously, checking inflation is and remains an important ECB objective. But how much risk is there in today’s credit starved economy for inflation by introducing quantitative easing when required?    Also, Germany fiercely defends the ECB autonomy and correctly so.  Nobody argues that the autonomous statute of the ECB should change.   But it is also naïve to suggest that the ECB is not heavily influenced by Berlin’s opinion about what it should be doing or not.   Autonomy is relative when in reality the President of the ECB and leadership of the EU frequently meet.

The Euro countries and the EU in general would well benefit from the ECB to start acting as a mature central bank along the lines of the Federal Reserve Bank of the US guarding the interests of the Dollar and the UK Central Bank the interests of the Pound.  This would, perhaps more than anything else at this point in time, complete the Euro project and stabilize financial markets in Europe and elsewhere in the world

Therefore, rather than spending time and energies in creating complex arrangements with the IMF to come to Europe’s rescue, the fastest, shortest, most effective and honorable route to solving the Euro crises is to engage our German friends to take the next step to closer political union as Angela Merkel has called for.   The worst crises the EU is facing in its history requires leadership that moves beyond the too little too late approach and closes the gaps in managing the Euro responsibly.

Concluding the ‘grand bargain’ will not only restore trust in the Euro but may have a positive spin-off in generating trust in the European political leadership.  Trust that is much needed to give Europeans hope that the current trend to self-destruction can be stopped, that Europe is capable of dealing with the fast changing context of this world while safeguarding the basic tenets of a reformed European Rhineland social-economic model. Hope that may translate in enhanced consumer confidence that would trigger future economic growth.  It would be the best holiday season message European leaders could give theirconstituencies at the EU Summit in Brussels next week.