By Tony Connelly, RTE Europe Editor, in Brussels
The verdict from the markets on the May 23 informal summit in Brussels is already clear.
The euro slumped to a 22 month low against the dollar, investors flooded into the safe haven of German bunds, and fevered speculation continued about a Greek exit from the euro.
Before the meeting officials did their best not to raise expectations. This was after all an informal meeting and normally no big decisions are taken. “These meetings tend to have an up curve in the markets in advance, and then a down curve immediately afterwards,” lamented one EU diplomat. “We’re trying to get away from that.”
Other sources close to the meeting were unusually dismissive, describing the six hour summit as “a lot of talking, no real surprises.”
However, some officials said the atmosphere was “harmonious” and not the head-on collision that had been predicted.
So what was achieved?
The outcome falls into two asset classes: the first is stuff which can be agreed at the next formal summit on June 28. The second is the longer term, more controversial stuff such as eurobonds, changes to the ECB, altering the remit of the permanent bailout fund the ESM so that it can recapitalise banks directly, and moves towards a deeper banking or fiscal union.
The first elements will deliver perhaps only modest growth and the results will take time. These include increasing member states’ contributions to the European Investment Bank (EIB) so it can attract private investors into infrastructure projects, speeding up existing EU rules on energy efficiency, the single market and the services directive, the better use of structural funds, and project bonds.
There is also a renewed scope on closing international trade deals to the benefit of European exporters (the Irish government is particularly keen on a new EU-US trade deal).
Already a pilot scheme for project bonds has been given the go-ahead with €230 million in fresh EU funds being used to leverage some €4.6 billion which in turn will be used in transport, energy and telecoms projects between 2012-2013.
The EIB should get an extra €10 billion from member states which in turn – again – can be leveraged to produce a pot of some €80 billion which can be spent on further infrastructure projects.
And a third element in EU spending is putting unused structural funds to work. Currently a number of EU countries are unable to spend all the money they get in their funding envelope. The idea is that these unspent funds could be used for jobs and training.
Modest though they are, however, all of these elements come with problems or are limited from Ireland’s point of view.
The pilot project bond scheme has only just been approved and so the projects that the €4.6 billion will be spent on have not yet been identified, and it’s understood none of the cash will go to Ireland.
On the question of the EIB, it tends to invest money for big, flagship, trans-European projects and because of our peripheral status Ireland often gets overlooked (the East-West electricity interconnector between Ireland and the UK was the last big recipient of EIB investment funds). The government will have to argue that any expansion of the EIB’s role is favourable to smaller countries like Ireland.
Already the Minister for Public Expenditure and Reform has been looking for ways to get more flexible funding from the EIB for use in education and health, but it remains to be seen if that will be successful.
On investing unspent structural funds there are also drawbacks. Countries who get this cash from Brussels will look askance at it going somewhere else just because it hasn’t been spent at home. The Irish government would like the funds to go to a central pool to which bids for funding projects can be lodged.
But there is another problem. Normally unspent structural funds go back to the EU budget, and in turn back to the member states. And those net contributors like Britain will fight for every cent of structural funds unspent to be returned to the exchequer.
And any glance through the annual report of the European Court of Auditors shows that structural funds that are thrown hastily or erroniously at poorly thought out projects can cause deep resentment, and blacken the image of the EU (ironically so, since member states are normally to blame).
For the moment though, the headline emphasis on jobs and growth may be enough to meet the new French president’s campaign promises. François Hollande is keen for a strong showing for his Socialist Party in the two rounds of the legislative elections next month, and at the end of the summit he appeared reasonably satisfied with how his growth agenda was received.
And it appears that he also stuck to his guns on eurobonds, but in a polite enough way. Angela Merkel, the German Chancellor reiterated her opposition to eurobonds but didn’t rule them out completely. Notably the Italian prime minister Mario Monti reported that a majority of leaders around the table were in favour.
This means that eurobonds have not been swept off the table, but are now part of a longterm agenda. “That was a real chink of light,” said one official.
As such the President of the European Council Herman Van Rompuy said he will bring to the next summit the “building blocks” and “working methods” on eurobonds, rather than actual proposals.
But that is a toe-hold, and so the summit can be judged a success by the Hollande camp.
This, then, has given the Irish government some badly needed clarity on next week’s referendum. Throughout the French election campaign the government squirmed at the repeated declarations by François Hollande that he would renegotiate the fiscal treaty if elected.
That gave a gilt-edged opening to the No campaign who could rightly argue that there was no point in voting on something which would be renegotiated a short time later.
But the Taoiseach Enda Kenny and Tanaiste Eamon Gilmore confidently declared after the summit, and again later, that the treaty text would not now be re-opened and that the text the voters decide on next Thursday is the one which will stand.
This was confirmed to RTE by several EU sources. The immediate growth elements which have now crystalised into the “Growth Agenda” can be handled through existing or forthcoming EU legislation, and don’t require treaty change. There was “no question” of modifying the treaty.
Eurobonds, changes to allow the ESM to recapitalise banks, a trans-European bank resolution agency, a European bank deposit insurance scheme – all of these bigger elements which many economists have long argued are necessary if governments are to really stand behind the single currency, will probably require moves towards a deeper fiscal union, something which the ECB President Mario Draghi has said could take shape over a 10 year period.
This will almost certainly require treaty change – perhaps even another intergovernmental treaty – but that will be several years down the line.
Finally, the Irish government’s tortuous efforts to lift the burden of the Anglo promissory notes continue, with Dublin hitching its aspirations to the Spanish wagon.
Madrid needs to find anywhere between €180 billion to €350 billion to recapitalise its banks. If that money was lumped on to the national debt Spain would need a rescue that the existing bailout funds could ill afford.
If the ESM were changed to allow it to rescue banks directly without burdening the sovereign debt, the government would argue strongly that the fund should be used to retroactively sort out the Anglo debt overhang.
The trouble is that the Spanish prime minister Mariano Rajoy did not bring any specific proposals to the table, nor did he present the exact figure that the banking sector needed.
While the informal summit was more of a freewheeling discussion, with some prime ministers speaking for at least 20 minutes, it has cleared the air. The evolution of a deeper, fiscal and/or banking union may even in future years be traced back to this meeting.
