Eurozone lacks leadership in hour of need

The Lisbon treaty was supposed to have remedied some of the European Union’s leadership problems. This week, it has been hard to know how. Granted, the EU is not short of leaders in this post-Lisbon era. Herman Van Rompuy is in place as president of the European Council and Catherine Ashton as high representative for foreign policy. They lined up yesterday with European Commission President José Manuel Barroso in front of the cameras at a summit meeting with Japan.

So when Joe Biden, the vice-president of the United States, comes to Brussels next week there will be no shortage of leaders for him to meet. (He will be addressing the European Parliament, where he will meet President Jerzy Buzek, then going to lunch with Van Rompuy and Barroso.)

And yet, despite this plentiful supply of leaders, the EU is looking short of leadership on the burning issue of the moment, which is the eurozone’s stability. True, Van Rompuy did – in the teeth of breathtaking falls on the foreign exchanges and stockmarkets on Tuesday – announce that a meeting of eurozone leaders would be held to approve the activation of a loan to Greece – probably on 10 May if that is not too late to save Greece and the euro.

The announcement was woefully late. The markets had already delivered their verdict on the EU’s loan plan: it is coming along too slowly and it is unconvincing.

Those of a charitable disposition will concede that a debt crisis is a tough test of any political leadership. How the markets will respond and how particular actors behave is out of the direct control of government leaders (look at the decision of credit ratings agency Standard and Poor’s to downgrade Greek debt to junk status on Tuesday). The EU’s leaders, which do not have their hands on the levers of crisis management, are even worse positioned than the leaders of national governments.

Even so, the performance over these past two weeks has been poor. It is as if the EU’s leadership – and that includes the Spanish government, which holds the rotating presidency of the Council of Ministers – has not appreciated the enormity of the task and the extent of the risk if things end in tears.

The markets simply were not convinced that the eurozone’s member states were acting in concert and were committed to coming to the aid of Greece.

The conduct of Angela Merkel, the Germany chancellor, in all this is less than glorious. At the European Council of 25-26 March, she got what she wanted: tough conditionality and the involvement of the International Monetary Fund was attached to the agreement in principle to provide a loan to Greece. That conditionality was justified. The conditions sent a message to other eurozone economies (the likes of Portugal, Italy and Spain) that there will be no easy way out.

Yet, by dragging her feet since then, Merkel has undermined the message of the European Council. The dithering has, ironically, increased the likelihood that other countries – notably Portugal – will be dragged down after Greece. She has increased the probability of contagion even as she sought to close off the possibility.

The suspicion grows that the regional election in North Rhine-Westphalia is more important to Merkel than the fate of the eurozone. The calculation is a fine one: the idea of shoring up Greece is not popular in Germany, but failure to provide a loan will do damage to the eurozone (and perhaps to German banks) that will not be popular either. While Merkel hesitates, the eurozone’s reputation suffers.

It would be unrealistic to expect any one of the EU’s many leaders to dictate terms to the chancellor of Germany (which will after all be contributing a large part of the loans to Greece). But that does not in itself explain the sense of a power vacuum. The EU and the eurozone have lost the initiative. Rather than shaping events, they are being shaped by events. The euro, Greece and every other member state will suffer from this collective failure of leadership.