GERMANY IS THE EYE OF THE STORM - BE IT EURO CUP OR EU SUMMIT

By Ruma Dubey

The eyes of the world are on the two-day European Summit, scheduled to start today at Brussels.  Expectations are running high that this summit, like a magician pulling a rabbit out of a hat, would come up with a solution and end the ongoing crisis.

The summit is going to be more like Angela Merkel versus the other European leaders. The general consensus is that countries like Spain, Italy and France, facing the brunt of the crisis are expected to come up with “ideas” which is all likelihood are to be opposed by Angela Merkel.

But if one thinks logically, it does look doubtful that this Summit will throw up any viable solution. There is no magic wand to make all the problems disappear. Yes, the summit could help the leaders air their concerns and worries, maybe a good place to unburden. But expecting action over these worries is like expecting Manmohan Singh to correct all the malaise in the Indian economy in one stroke.

Expectations were running high even when the G-20 Summit was on but apart from being more of a PR exercise, time and again, it has shown no real results. This time around the emerging economies scored a few brownie points and “pledged” money but that’s what it was all about – pledged money which may or may not come into the kitty.

The markets are expecting the Summit to announce a growth package with stimulus to kick start the economies in the EU zone. Countries like Spain are expecting financing. There is talk of jointly issued Eurobonds which many say could help dissipate use of bailouts for Spain or Italy. But Merkel is dead against the issue of these bonds as she feels these would be "economically wrong and counterproductive". Leading the strongest economy in Europe, Merkel has been vociferous in advocating a political union before coming up with any short term solutions. Thus the question which comes to mind is – will Merkel continue to dictate the terms at this Summit or will the other, more desperate economies get together and stand against Merkel and have their way?

Countries like Italy need desperate measures to boost domestic demand and more importantly, countries which have been enforcing austerity measures, now need to reassure their people that their sacrifices have paid off. But instead if more austerity is put in place, with no concrete action plan for the future, there could be social unrest.

Many confer that the only thing which could come out of the summit could be ways and means to align budgets and banking systems, a banking union of sorts. And the first step towards that would be to set up a European bank supervision.

The rest will be all talk and more talk. Germany wants more control and structural measures while the rest want a permanent way out. Well, when there is no unity in thoughts at the moment, expecting the summit to magically solve the euro crisis is naïve.