Everyone is watching Brussels now hoping that this is where good news will come from for avoiding global recession and a new crisis. And if by Monday morning the expectations were that the European Union would this time come up with indeed drastic measures to tackle the several problems especially in the euro area, now it seems there is a retreat. As euinside wrote recently, Europe's problems are no longer only hers. This is getting more and more painfully clear in the last few days.
On Saturday and Sunday the G20 finance ministers gathered at an extraordinary meeting in Paris and sent a clear message to Brussels. In their joint communique the ministers of finance of the most influential nations in the world from all continents, as well as the central banks governors, point out that we are living in times of heightened tension and significant downside risks for the global economy, which need to be addressed decisively in order to restore confidence, financial stability and growth.
The 20 ministers and governors welcome the adoption of "the ambitious reform of the European economic governance." This is the package of six proposals (Six-Pack) which had to be endorsed in the summer but was stuck in disputes between the Council and the European Parliament. The package was finally adopted in mid-September but there are already voices that the measures envisaged in it might not be sufficient. This is one of the issues euinside will discuss in the European Parliament in Brussels today with MEPs from three of the largest political fractions and members of the economic and monetary affairs committee: Diogo Feio (EPP, Portugal), Elisa Ferreira (Progressive Alliance of Socialists and Democrats, Portugal) and Sven Giegold (Greens/EFA, Germany).
The G20 finance ministers also welcome the ratification of the changes of functions of the eurozone rescue fund, the European Financial Stability Facility (EFSF) - a process that was seriously threatened by the last country that had to ratify it - Slovakia. Although hard, the ratification ended successfully but left the feeling that there are expectations for additional measures which still no one wants to articulate. "We look forward to further work to maximise the impact of the EFSF in order to avoid contagion, and to the outcome of the European Council on October 23 to decisively address the current challenges through a comprehensive plan", the communique reads.
It is the words "decisively address" and "maximise the impact of the EFSF" that raise a lot of questions and create the big expectations which Germany has started pouring cold water upon. According to The Financial Times, Chancellor Angela Merkel prefers avoiding so much expectations from the European Council on Sunday but she thinks time has come for "bold steps" - a thesis broadly promoted by Finance Minister Wolfgang Scheuble. The big issue is what does Germany mean by "bold steps", especially in the context of the EFSF and of the bailout for Greece. In Brussels there is a more open talk about audacious changes in the Treaty of the EU. Such changes are supported by Germany too.
It is evident however, that no matter the global interest Europe remains alone in its efforts. The United States, in spite of the many reasons for criticism because of their huge debt and budget deficit, sharply criticise the EU and even threaten that unless measures are taken this will have a grave impact on the American economy.
Moscow is also looking at Brussels with concern. On October 10 Russian President Dmitry Medvedev and central bank chief Sergey Ignatiev also expressed concern from the situation in Europe on the occasion of the opening of a new financial centre. According to Medvedev, the economic situation in Europe and the world at large is affecting the Russian economy and financial markets. "Their behaviour is very complex and fluctuating, unstable, and this situation is cause for serious concern. A number of European countries and the United States have still not settled their budget deficit issues", the Russian president added.
"... in September the main reason was the problems a number of European countries were having with their sovereign debt. Unfortunately, this latter problem is taking time to resolve, and European governments have not yet managed to convince the markets that it can be settled quickly and effectively", central bank chief Sergey Ignatiev said in his part.
There are just a few days left until the European Council but it is obvious that they will not be enough to find the solution everyone is expecting from Europe, and this puts the Union before a very difficult dilemma - to continue curing the gangrene with expensive antibiotics or to take out the scalpel. And precisely because there are expectations for fateful decisions and too much expectations from this council most probably the Big and Comprehensive rescue plan this time too will not be sufficiently big and comprehensive to respond to all expectations.