Top news: The widening eurozone financial crisis dominated headlines across Europe this month, as Ireland followed Greece in appealing for mammoth bailout loans to save it from bankruptcy. There was mounting speculation that the contagion would spread to Portugal, Spain and beyond.
Ireland’s budget deficit has ballooned to an expected 32 percent of GDP this year as a result of spending billions of euros to prop up failing banks. Fearful of default, private investors were demanding over 8 percent interest on the country’s 10-year bonds — more than the country could afford to pay.
So after weeks of denial Prime Minister Brian Cowen turned to the European Union and International Monetary Fund (IMF) to request a rescue. The EU agreed on Nov. 28 that the bailout package would total 85 billion euros.
When Greece made a similar appeal back in May, markets were calmed. This time around, doubts about the conditions the IMF and EU are likely to impose, concern about political stability in Ireland and fears that private investors would still take losses ensured that Ireland stayed under pressure while the EU considered the request.
And the markets began looking for fresh victims. Interest rates on Portuguese bonds were pushed up over the 7 percent rate at which the government had previously said it would have to consider seeking an EU/IMF bailout. If Spain were next, many doubt if even the resources of the EU would be able to sustain a rescue, not to mention the threat that Belgium, Italy or Britain were to follow. Politicians were anxiously looking to market reaction to the Nov. 28 Ireland deal to see if Portugal and Spain would remain in the cross hairs.
Concern over Ireland was exacerbated by signs of looming political instability, with the increasingly unpopular Cowen asking parliament to hold off on calling elections until after a budget designed to help balance the books.
In Portugal parliament passed an austerity budget designed to slash the budget deficit despite the country’s biggest general strike in over 20 years to protest against the austerity measures.
The crisis has cast doubt on the very survival of the euro currency zone, putting pressure on EU leaders to come up with stronger mechanisms to underpin the stability of their currency and remove the uncertainties that allow markets to bet against the prospect of individual eurozone members defaulting. However plans pushed by Germany suggesting that private investors should be prepared to suffer losses to reduce the scale of EU-financed bailouts have been blamed for adding to market panic.
Europe’s need for budget tightening was also the driving force behind the month’s other major story: an unprecedented agreement on defense cooperation between Britain and France. Faced with growing pressure on their budgets, the EU’s two biggest military powers struck a deal to pool resources on everything from aircraft carriers, expeditionary forces, transport planes and their nuclear deterrent. Traditionalists on both sides of the English Channel puffed about this new Entente Frugale between the old adversaries of battles from Hastings to Waterloo. Others wondered if this would help forge a stronger European defense or if London and Paris had cold-shouldered the other members by going ahead on their own rather than through the EU.
Europe’s defense was also the subject of the mega-summit held in Lisbon where NATO agreed on a rough timetable for ending combat operations in Afghanistan, adopted a grand new strategy to face 21st-century threats and tried to strike a deal with Russia on anti-missile defenses. U.S. President Barack Obama met separately with top EU officials to talk about trade, security and the economy, but he acknowledged it was “not the most exciting summit.”
Money: While the finances of the EU’s member nations were causing the most headaches, the bloc also managed to engineer a serious spat about its own joint spending.
A dispute between the European Parliament and national governments about the EU’s 126.5 billion euro budget for 2011 ended in deadlock, leaving the union without a spending plan for the coming year. Although an emergency system will allow for the day-to-day running of the union, EU officials issued dire warnings about the consequences, particularly on the already delayed efforts to set up an EU foreign service.
The European Parliament refused to accept a demand from the national governments limiting the increase in the EU budget to 2.9 percent next year, if the governments agreed to give it a greater say over setting spending levels in the future.
The 27 member nations each contribute to the EU’s central budget, which amounts to around 1.04 percent of the bloc’s total GDP. Most of the money is used to fund infrastructure projects in poorer EU regions, subsidize farming and on aid to developing countries.
Elsewhere: British member Godfrey Bloom brought the spirit of Basil Fawlty into the European Parliament when he interrupted a debate on the Irish financial situation to bellow a Nazi slogan at a German lawmaker.
Bloom was expelled from the chamber after shouting the Nazi “ein volk, ein reich, ein fuehrer” (one people, one empire, one leader) at Martin Schulz.
A member of the United Kingdom Independence Party, which seeks to pull Britain out of the EU, Bloom said Schulz’s support of greater powers for the EU was “fascism or something like it.”
Schulz is a leading member of the Social Democratic Party, which was in the forefront of German opposition to the Nazis until it was banned after Adolf Hitler came to power in 1933. Many of its members died in Nazi concentration camps.
It was not the first time Schulz has come in from Nazi-tainted abuse within the parliament. In 2003, Italian Prime Minister Silvo Berlusconi said the German reminded him of a concentration camp “capo” after Schulz criticized his government’s domestic policies.