Taking their own advice?

Finance Ministers meet today in Brussels to discuss proposals for strengthening the EU’s “economic governance”, spearheaded by European Council President Herman Van Rompuy and his “task force” on the subject (which so far has failed to convince member states). In parallel with whatever Van Rompuy and the Finance Ministers come up with, the Commission will on Wednesday table its proposals for various measures intended to pre-empt another sovereign debt crisis. These will include sanctions for countries which run unhealthy budget deficits .

According to German daily Die Welt, the Commission is also contemplating the introduction of a “warning system” to monitor wages in member states' public sectors. This is potentially hugely controversial stuff, depending on what the proposal looks like in the end. Marco Buti from the European Commission for Economic and Financial Affairs explains the rationale: "the wage development in the public sector does of course have a great influence on the economy".

Fair enough. However, although it's not entirely clear to us which EU institution will be in charge of deciding when public sector wages are posing a risk to the sustainability of the overall economy under the forthcoming proposal, if Mr. Buti sees the Commission in this role, he might be up against some resistance. Says Buti, "when wages in the public sector damage competitiveness and price stability then the country will be requested [by the Commission] to change this policy."

Problem is, the Commission isn’t exactly in the strongest moral position to give lectures to member states on public sector pay. EU officials’ salaries are already far higher than the majority of public servants in member states, and the Commission now wants to award its officials three pay rises by 2011, adding up to a pay hike of 5% – at a time when most member states are busy imposing pay freezes and deep cuts. The same reasoning can be applied to the Commission’s drive to make Europe’s various pensions systems more sustainable (including retiring later). Meanwhile, EU officials can retire at 63 with up to 70% final salary pensions, and many take early retirement.

It has been pointed out many times before – by Dan Hannan in the European Parliament last week for example – but it can never be repeated enough times: the mismatch between what the EU institutions preach on public finances and what they practice is mind-boggling.

If member states had the same pay and pension policies as the EU institutions, we fear that they would go bust in no time.

Economic governance: a tale of two polls

A new poll published yesterday by the German Marshall Fund of the United States makes for interesting reading.

With a few exceptions, majorities in the eurozone countries said the euro has been a bad thing for their economy, including France (60%) and Germany (53%), but also Spain (53%) and Portugal (52%). Italians were divided on the benefits of the euro with 47% saying the euro has been good and 48% saying it has been bad for their economy. Only the Dutch (52%) and Slovaks (64%) had majorities saying the euro has been a good thing.

Unsurprisingly, a full 83% in the UK thought that using the euro would be a bad thing for the economy.

But perhaps just as interestingly, the poll found that a plurality of EU respondents (46%) believe that in dealing with the current economic crisis, each country’s national government should have primary responsibility. Roughly two-in-five EU respondents (39%) said that the EU should have primary responsibility for handling the current economic crisis.

Only in Germany did the majority (54%) agree that the EU should have the leading role in economic decision-making. The French were divided on the issue, with 47% saying the national government and 43% saying the EU should have the primary responsibility.

This certainly makes an interesting comparison with the Commission's recent claims that "75% of EU citizens want more European economic governance", based on a rather creative interpretation of its Eurobarometer survey, which we have debunked before. EUobserver notes that the results "sharply contradict" the European Commission's interpretation.

Respondents were only asked whether or not “a stronger coordination of economic and financial policies among all EU member states” would be effective to combat the ongoing crisis (see p. 38 here). The question didn’t even mention the role of the EU or the term “European economic governance”. The Commission got its 75 percent figure by adding up the respondents who thought that stronger coordination would be “very effective” (26 percent) and those who only thought it would be “fairly effective” (49 percent).

Herman Van Rompuy's taskforce clearly has a very difficult job on its hands if it's to convince people on the need for greater economic governance.

So that €750bn bailout was just a misunderstanding?

In an interview with the FT published today, Jean-Claude Trichet makes a pretty extraordinary comment. He seems to deny that the eurozone was ever really in crisis:

"I don’t think that the euro area was close to disaster at all – seen from the inside."

So €750bn eurzone bailout packages, €110bn 'loans' to Greece and the ECB compromising its independence by buying government debt, are just business as usual? Trichet blames the misconception that the euro is in trouble on a lack of understanding:

"Seen from the outside, I would say that it’s always difficult for external observers to judge and analyse correctly the capacity of Europe to face up to exceptional difficulties."

If only Trichet were right. Unfortunately it seems that EU leaders are still unwilling to admit to the fundamental failures of the EMU project - such as huge divergences within the eurozone and monetary union without fiscal union. Tightening budget rules is all very well, for example, but what about a country like Spain that wasn't in breach of them running up to the crisis?

Until the eurozone elite faces up to this fairly simple and fundamental reality, the truth is that it is they that 'don't get it', not us mere 'outsiders'.

A classic example of EU spin

Here's an example of some good old EU spin for you:

The European Commission today announced the results from the latest Eurobarometer poll - carried out in May during the height of the crisis - with a press release carrying the headline,"EU citizens favour stronger European economic governance". 75 percent of Europeans, we are told by the press release, are in favour of giving the EU a stronger role in the coordination of member states' economic and budgetary policies.

EU Justice Commissioner Viviane Reding - who also is in charge of Communication - comments:

"The clear majority for enhanced European economic governance shows that people see the EU as a decisive part of the solution to the crisis".

Clearly, something fishy is going in here, not least since only 26 percent of people then go on to say that they consider the EU best placed to deal with the financial and economic crisis.

And sure enough, the Commission is trying to take us for a ride. Respondents to the Eurobarometer survey were only asked whether or not "a stronger coordination of economic and financial policies among all EU member states" would be effective to combat the ongoing crisis (see p. 38 here). The question doesn't even mention the role of the EU or the term "European economic governance". Creatively, the Commission then adds up the respondents who think that stronger coordination would be "very effective" (26 percent) and those who only find it "fairly effective" (49 percent) to reach the 75 percent figure.

Seriously, how stupid do they think we are? By no stretch of the imagination is this the same as 75 percent of Europeans being in favour of giving the EU more powers to monitor national economies, which the Commission is trying to make us believe in its press release.

The Eurobarometer could have asked this question instead: “Do you think that the EU should be given more powers to monitor your country’s economy, including decisions on public spending and taxation?” We suspect the result would have been completely different.

What the Commission really should be focussing on is the troubling fact that only 49 percent of respondents think that EU membership is "a good thing" down from 53 percent last year. Or that the percentage of people who think that EU membership is "a bad thing" has reached its highest level in a decade - now at 18 percent (see p. 12).

What's more, the percentage of people who think that EU membership is a good thing has decreased by 5 percent in France and the Netherlands, for example, and by a striking 10 percent in Germany (down to 50 percent) in only one year. Incidentally, these countries are all net contributors to the EU budget.

Is the Commission getting the hints? We hope so, but somehow doubt it.

Ps. If we were to use the same method as the Commission to support our claims, we could add up respondents who said that EU membership is "a bad thing" with those who said it is "neither good nor bad" (29 percent) to obtain a remarkable 47 percent of "EU non-enthusiasts".

Hungary declares "economic freedom fight" with EU and IMF

The new Hungarian government, and its Prime Minister Viktor Orbán, has decided it's had enough of being dictated to by the EU and the IMF, which both recently halted bailout-loan talks, saying Hungary wasn't doing enough to make durable cuts in state spending.

Orbán's government has said it will adhere to the 2010 budget-deficit target - 3.8% of GDP - set under the terms of its current loan agreement with the IMF and EU. But it insists how it goes about it shouldn't be the IMF or the EU's concern.

"It's an economic freedom fight," said a senior official in Mr. Orbán's administration. "We are getting back the financial independence of the country."

This will certainly prove to be an interesting backdrop to the ongoing EU discussions regarding 'economic government'.

Germany's worst nightmare?

The Commission has today presented plans to tighten up budgetary supervision and oversight in an attempt to avoid a repeat of the current eurozone crisis in the future (i.e. making up for the obvious and fundamental flaw of the eurozone, which is that monetary union cannot exist without economic and political union). “We want governments to send their budget outlines to Brussels for review before they are approved by their national parliaments," EU Economic and Monetary Affairs Commissioner Olli Rehn said today. "We can then see early whether a country is adhering to the Stability and Growth Pact. If not, we would intervene."

However, the Commission has also said that it wants to "expand economic surveillance beyond the budgetary dimension to address other macroeconomic imbalances, including competitiveness developments and underlying structural challenges." This jargon-laden sentence represents a victory for the belief, long-held by the French in particular, that the eurozone should coordinate not just monetary and fiscal policy but also create a genuine economic union/government. The Commission says:

Looking at the euro area as a whole and on a country-by-country basis, the Commission would assess the risk of all possible forms of macroeconomic imbalances that jeopardise the proper functioning of the euro area...The Council, with only euro-area Members voting, would invite the Member State(s) concerned to take the necessary action to remedy the situation. Should the Member State(s), within a stipulated time frame fail to take the appropriate measures to correct the excessive imbalance, the Council, with a view to ensure the proper functioning of EMU, could step up the surveillance for the Member State concerned and decide, on a proposal by the Commission, to issue precise economic policy recommendations. Where necessary, the Commission would use its possibility to issue early warnings directly to a euro-area Member State.

This, in effect, means using the EU's institutions to encourage/force eurozone states to adopt economic policies that fit not just economic but also political aims - an anathema to the doctrine of low inflation, price stability and frugality engrained in the German public's psyche.

As many people have pointed out, improving competitiveness and employment in the periphery eurozone states such as Greece, Portugal and Spain is not just a one-way street of lowering wages in these countries but also increasing domestic demand in Germany for these countries' goods and services. French Finance Minister Christine Lagarde infuriated Chancellor Merkel earlier this year when she said,

"Clearly Germany has done an awfully good job in the last 10 years or so improving competitiveness. When you look at unit labour costs, they have done a tremendous job in that respect. I’m not sure it is a sustainable model for the long term and for the whole of the group. Clearly we need better convergence. While we need to make an effort, it takes two to tango."

Merkel's response was to immediately rebuff any idea that Germany should do more to boost domestic demand:

"The problem has to be solved from the Greek side, and everything has to be oriented in that direction rather than thinking of hasty help that does not achieve anything in the long run and merely weakens the euro even more."

However, IMF chief Dominique Strauss-Kahn has been stirring German sensitivities again today by suggesting that the eurozone introduce short-term fiscal transfers between member states.

To add insult to injury, the proposals tabled by the Commission will be decided by majority voting, meaning that Germany could be outvoted and be asked to revise its budget. We can't see that there's anyway Germany will accept this. The German public has already been asked to stump up a €123bn bailout package and swallow a growing politicisation of the European Central Bank, with its decision to start buying government bonds. But it seems the Commission, backed by the French political elite, has kept pushing.

There surely comes a point when Germany has to push back.

They said it wouldn't happen

What was inconceivable only a couple of months ago has now happened: EU leaders have agreed a massive €500 billion bailout package for eurozone countries facing sovereign debt problems – on top of the €110 billion already committed in a separate rescue package for Greece. An additional €250 billion could also come from the IMF should things get really sticky.

You have to go back pretty far in history to find a time when Europe’s leaders have been so desperate. And you can see why. Markets remained unconvinced of the adequacy of the original rescue package for Greece, and you could sense some serious anxiety over the risk of an escalating sovereign debt crisis, involving Spain, Portugal, Ireland and Italy (The UK is not exactly immune either, although its situation is different). In the last week, the EU elite realised in horror that their flagship project might actually be on the verge of collapsing under the weight of its own contradictions.

Of course, these kinds of tensions are exactly what the sceptics always warned against, and those who blindly argued in favour the Single Currency have some serious soul-searching to do. But it’s still in everyone’s interest that the eurozone sorts out its mess, and the massive bailout package agreed over the weekend seems to have calmed the markets - for now.

As an event in the EU’s history, what happened over the weekend is absolutely extraordinary on so many different levels:

1) Until very recently, Eurozone bailouts were considered a no-go, since both the letter and the spirit of the EU Treaties simply don’t allow for them. Just consider that as late as March this year, Angela Merkel said, "We have a Treaty under which there is no possibility of paying to bailout States in difficulty”.

But as we noted many times before, EU law has a tendency to become irrelevant in times of crisis and the once heralded no bailout principle has now been watered down to the point of becoming meaningless. Having said that, the ‘big’ bailout fund still has some ways to go before it is approved by national parliaments and has passed all legal hurdles, as Edmund Conway points out on his Telegraph blog.

2) The scale of the bailout is mind-boggling. Again, consider that only a few weeks ago, the amount discussed was closer to €30 billion in a one-off bailout for Greece (and before that €20-25 billion). Then, on May 3^rd, that amount had almost quadrupled. As Italian Foreign Minister Franco Frattini put it, “It was necessary to intervene right away to help Greece. To avoid damage we initially talked about 50 billion euros, but decided on 110 billion only 10 days later.” And roughly a week later the deal had been rolled out to all eurozone countries, now involving hundreds of billions of euros.

You can forgive people for wondering where this will end. Particularly given that throwing good money after bad in this kind of way isn’t really solving the fundamental problems of the weak solvency, competiveness and productivity that weaker eurozone countries are currently facing. So this deal could easily spiral out of control and see UK and European taxpayers becoming exposed to ever growing debt burdens of governments over which they have no democratic control whatsoever. This simply isn’t sustainable.

3) EU leaders are basing parts of the bailout on Article 122 of the EU Treaties. This is profoundly dishonest and involves a huge legal stretch. Article 122 states that,

"Where a member state is in difficulties or is seriously threatened with difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the member state."

As we’ve stated before, the European Council has previously said that any use of this article must be compatible with the no bailout rule in the EU Treaties. This interpretation is now being completely ignored.

Telegraph journalist Bruno Waterfield summarises the issue well on his EUobserver blog,

“'Exceptional occurrences beyond control’? This is a lie. A whopping, howling lie told to us by Europe’s political class. This crisis is a product of human agency, the choices and decisions taken by people facing circumstances that are man-made and, thus, susceptible to political intervention. To use a legal clause designed for earthquakes or potentially extreme unforeseen circumstances that threaten the existence of one member state to save the skins of the EU’s political class is profoundly deceitful – quite aside from being legally dodgy."

4) What we were told would never happen, has now occurred - British taxpayers have become directly liable for the debts of eurozone governments. Part of the rescue package involves extending a special fund, previously available only for non-eurozone members Latvia and Hungary. This so-called 'stability fund' will allow the EU Commission to borrow up to €60 billion on international markets, in addition to the €50 billion that was already in the pot, using the EU budget as collateral. If a receiving country fails to pay back the loan, all 27 EU member states would be forced to pay into the EU budget to cover the default, meaning that British taxpayers would be liable for about 13 percent of any losses (corresponding to the UK’s share of the EU budget). Alistair Darling maintains that the maximum loss to British taxpayers would “only” be €8 billion.

Mr Darling said yesterday that the UK will never “underwrite” the euro, but that is exactly what is happening (although the UK will be left out of the bulk of the rescue package, the €440 billion scheme of bilateral eurozone loans).

5) Eurozone leaders took a decision involving non-eurozone countries but without the latter being represented. Alistair Darling has said he supports the UK’s inclusion in the stability fund, but in reality he doesn’t have much of a choice. The decision was effectively taken at the eurozone summit on Friday and since the deal was decided using QMV (as it was based on Article 122), the UK didn’t have a veto when the deal was sealed in the Council of Ministers on Sunday. This is another thing that never was supposed to happen. The fact that the UK only has a caretaker government in place at the moment didn’t exactly help either.

6) Germany had to cave in to French demands on the scope and details of the bailout. According to FAZ, following the deal, Nicolas Sarkozy triumphantly said that "95 percent" of the agreed bailout package "reflect French proposals…at last we have decided to give the eurozone a real economic government." This whole arrangement has Sarkozy’s fingerprints all over it. Or as the Brussels correspondent for FAZ, Werner Mussler noted yesterday, "The facts are: Sarkozy has achieved what he always wanted: the fundamental decisions of the eurozone will be taken by the leaders of the euro states."

7) The line between fiscal and monetary policy has been blurred. Arguably the most significant move over the weekend was the ECB’s decision to buy eurozone government and private debt. In doing so the ECB clearly bowed to political pressure, compromising its independence while for the first time getting involved in fiscal policy – akin to ‘quantitative easing’ in the UK (The EU Treaties prevent the ECB from buying bonds directly from governments, so to circumvent the rules it will instead be buying debt second-hand from banks). This is huge. In combination with the other moves towards fiscal EU centralisation (including more EU budgetary controls), it’s now beyond doubt that we’re seeing the emergence of an economic government for the eurozone.

Will the Germans accept this brave new eurozone? That’s far from clear. Die Welt set out its position in a comment piece yesterday:

“This [the involvement of the ECB] will harm the stability of the euro in the longterm and bury the German belief in the stability of the euro. The costs of this error are not yet foreseeable...The German conceptions of stability principles, responsibility and a monetary policy independent of political influence are coming increasingly under pressure. The idea of an economic government with right of intervention in national economic policy, transfers of debt and a politically influenced central bank is on its way."

So EU leaders have given themselves some breathing space, but what have they actually solved? And at what cost, in the medium and long term, to the EU economy and to European democracy?

As the FT argued today:

“There can be no more pretence that monetary union respects the premise on which it was sold to European citizens, Germans in particular. There is a real chance that a euro member’s failure to pay its debts will land neighbours or the ECB with losses that can only amount to fiscal transfers or money-printing. Strict surveillance and ECB independence was meant to make it impossible to end up in this situation; both have been undermined...Pooling more sovereignty than it ever planned, the eurozone is now at the mercy of its most indebted members’ sovereign decisions.”

Threat or opportunity?

The German-led calls for an IMF-style bailout fund for the EU have caught most people on the hop, including the French, and the lack of detail suggests that the practicalities are only now being worked on inside the German Finance Ministry.

French officials have said that there are two fundamental issues still up for debate: whether the European Monetary Fund would cover only the eurozone or all of the EU's 27 member states, and whether the EU treaties should be amended to create the fund. Plainly, there is a long way to go before the EMF gets off the ground and the current debates are highly speculative.

But as far as the first question goes, if the proposed EMF were to include all 27 member states, rather than just the eurozone, this would obviously have significant implications for the UK as British taxpayers would be asked to underwrite other EU governments’ debts. It would also draw the UK into a system of EU 'economic government' that would potentially give the EU greater powers to interfere in monitor the Government's handling of the economy.

For both of these reasons, any UK government is likely to stay well clear of any participation in the EMF.

The second issue, over whether an EMF would require treaty change, is far from clear but there are a few hypothetical scenarios.

Paris appears cautious about any proposal for an EMF that would require treaty change. French Finance Minister Christine Lagarde reportedly said that "Other avenues should be explored" that are in line with the existing Lisbon Treaty. This suggests one of those creative legal EU solutions which confuses everyone (possibly involving the Lisbon Treaty's ratchet clause which allows for amendment of the Treaty without it being considered an actual treaty change).

However, Chancellor Angela Merkel yesterday made it clear that she thought that the creation of a bailout fund would certainly require changes to the EU treaties. "Without treaty changes we can't form such a fund," she said. And given that it would amount to a breach of the current 'no bailout' rules in the treaties, it is hard to argue with her.

Commentators are already suggesting that new EU treaty negotiations would present both Labour and the Conservatives with big problems. Gordon Brown promised MPs that after Lisbon there would not be any institutional changes in the next Parliament:

I can confirm that, not just for this Parliament but also for the next, it is the position of the Government to oppose any further institutional change in the relationship between the EU and its member states. [Hansard, 22 October 2007]

Similarly, the Conservatives announced last year that they would give voters a referendum on future transfers of power to the EU.

However, depending on how this plays out, an EMF that didn't include the UK could actually present the UK with a sizeable bargaining chip, particularly a future Conservative government. Treaty change would require the Government's consent, whether the UK is involved in the EMF or not. In other words, this could be an opporunity for an incoming Conservative government.

The Conservatives have said they want to renegotiate areas of the UK's membership, notably opt-outs from costly EU employment regulation and intrusive justice and home affairs legislation. In addition, an incoming UK Government has a lot of work to do on the EU budget and the single market issues, including financial legislation.

There is possibly a deal to be done here – the Tories could say "if want to go ahead with the EMF and closer economic integration of the eurozone you need to give us something that we want in return." In Cameron's own words, it would be the ideal opportunity to argue and demonstrate "that European integration is not a one way street and that powers can be returned from the EU to its member countries".

The tricky issue is of course that the Conservatives' promised - or at least are now percieved to have promised - that any siginficant treaty change leading to further integration would trigger a referendum in the UK. And the establishment of an EMF would be a big change, as it would create a whole new EU institution and a lender of last resort at the EU-level. This, in turn, is a clear step towards fiscal federalism, regardless of whether the UK takes part.

At the same time, if not involving Britian at all, the argument can be made that it does not involve a transfer of powers from the UK to the EU per se. Indeed, if put in the right context, it could be presented as a method of regaining powers from the EU, by taking the creation of EMF 'hostage' in EU negotiations.

The critics were quick to say that Cameron's policy was unrealistic and undeliverable, but if the proposal for an EMF gains speed he may be presented with an early opportunity to prove them wrong.

If all the pieces fall into place, he should take it.

Merkel backs IMF-style fund for eurozone

More news on the eurozone front this weekend as we learned that France and Germany are preparing plans for an IMF-style European Monetary Fund (EMF). German Finance Minister Wolfgang Schäuble has said he will "present proposals soon" for a new eurozone institution that has "comparable powers of intervention" to the International Monetary Fund.

Schäuble has today received backing from his Chancellor, Angela Merkel, who said, the EU's current tools "are not sufficient." She added, "The European Union must be able to respond to the challenges of the moment" and if establishing an EMF required revising the EU treaties it would be a price worth paying becasue "we’re saying we want to solve our problems ourselves."

However, it seems that the German government may meet strong resistance from the German political and economic establishment. Juergen Stark, a German Executive Board Member at the European Central Bank, has chosen to write in tomorrow's edition of Handelsblatt that "Such a mechanism would not be compatible with the principles of the monetary union". He has also warned that "public acceptance of the euro and the European Union would be undermined."

Stark's column argues that establishing an EMF would risk over-politicisation and further increase the eurozone's susceptibility to 'moral hazard' or free-riding from certain member states. "Countries which have not abided by the rules, which profit unilaterally from the euro, without taking their duties seriously, should not be rewarded," he writes.

Given Merkel's obvious unwillingness to sign up to any Greek bailout, such public support for the EMF proposal is a little surprising. Given that Germany would be the biggest contributor to such a fund, surely it amounts to a very similar thing: a German guarantee for the eurozone.

Certainly one to watch...

'Economic government' and the democratic deficit

The comment pages of today and the weekend's papers were understandably filled with reflections on a potential Greek bailout and the wider implications for the euro and the EU as a whole. We argued in our recent briefing that a bailout would have far-reaching negative implications for the eurozone, establishing a precedent for rescuing profligate states that fails to address the inherent problems of a monetary union between the eurozone's differing economies without the harmonisation of fiscal policies, for which there is no public support.

The crisis is nonetheless being used to justify the establishment of EU 'economic government' - the next step towards the federalists' Holy Grail of fiscal or political union, with common taxes and redistribution across the eurozone. This marks a significant change to the rules of the game, with the EU now largely dictating the terms of Greece's economic policy to the Greek government. This is precisely what citizens were told wasn't going to happen when EMU was designed and agreed, even if certain politicians had other ideas.

In the Weekend FT Tony Barber noted that:

It looks very much as if Greece’s fiscal sovereignty will be, for most practical purposes, temporarily suspended. [The EU] can either clutch its worry beads and hope that Greece, acting under formidable outside pressure, will transform itself into a self-disciplined polity. Or it can exploit this crisis as an opportunity to shift European monetary union into a higher gear by taking irrevocable steps to closer fiscal integration.

Meanwhile, in the Guardian, Gary Younge argued that the eurozone crisis is emblematic of an EU democratic crisis:

The issue is not the failure to match economic and monetary ­union with political union. It is the naked disregard for democratic engagement in the entire system that in no small part ­explains why voter turnout in EU elections has plummeted by more than 30% in the last 30 years. Whenever people vote no to a phase of integration – as they did in Ireland two years ago – the EU simply orders them to vote again until they produce the right result. Once they vote yes there is no turning back.

The Weekend FT's leader writers concurred:

...even for advocates of closer integration in Europe, this is a mistake. The EU suffers from a lack of popular legitimacy. The manner in which the Lisbon treaty was passed was unedifying, giving the impression that the EU is a stitch-up by a small elite. If Europe, or just the Eurozone, is to become more deeply joined, it should be a deliberate and honest process, not an accidental and covert one.

However, there is a short term path of less resistance. As the Weekend FT article argues:

There is no need for the EU to expose itself to these difficulties. It has another option for saving Greece: the International Monetary Fund. It would be embarrassing for a member of the EU to receive help from the Washington-based Fund, so admitting the continent could not solve its own problems. But better that than sleepwalking into constitutional upheaval.

Going to the IMF is the best of a bad bunch of short term options but the EU's leaders have a nasty habit of staking pride and prestige ahead of the democratic process.