The debt crisis in certain states will not disappear by magic in 2011. It could even grow worse if European Union members keep reacting the way they did in 2010: slowly, in fits and starts and haphazardly.
The rescue system put in place in stages and then consolidated in December has not distanced the spectre of a wave of sovereign defaults. After financing banks' erring ways, national governments are forced to reduce their debts with austerity plans that endanger already weak growth. Insufficient revenues, swelling interest rates and the absence of alternatives form a trap that could snap shut on the most vulnerable states. A risk of contagion to the rest of Europe, bringing severe economic and social consequences, will remain a possible scenario until the states take the only possible saving measure: a decisive step towards economic, fiscal and budget integration.
The United States is more heavily in debt than the average European state but is not being attacked by markets. Why? Very simply because it constitutes a state that issues and manages its entire debt, whereas the EU does not have this capacity. Each member state is endeavouring on its own to convince investors to count on its reimbursement capacity. The euro is de facto the single currency of states waging an economic war.
In 2004, former European Commission President Jacques Delors (1985-1995) regretted that Economic and Monetary Union (EMU) had "only one leg, the monetary leg". Yet, today, the states continue to do as they like. "If the Union's financial policy is in fact decided in Berlin, its budget policy in London, its agricultural policy in Paris, its regional policy in Warsaw, its military security in Washington, its energy supply in Moscow and its future nowhere, then there's no more Europe," warned French MEP Alain Lamassoure (EPP), pressing for urgent adoption of a European solidarity pact.
The idea of EU loan stock to finance future spending projects had already been proposed by Jacques Delors and was recently taken up again by his present-day successor, Jose Manuel Barroso. On the other hand, the idea of issuing eurobonds to pool the loan capital needed to finance the debts of the EU's most vulnerable member states and to discourage speculators was launched, so far unsuccessfully, by Luxembourg's Prime Minister Jean-Claude Juncker and Italian...