Chancellor Killjoy: Merkel Unmoved By EU Summit Euphoria

Politicians seemed jubilant at the the close of the EU summit in Brussels on Friday, with leaders hoping to put their economic woes behind them. But German Chancellor Angela Merkel wasn't quite as lighthearted. She warned that without fiscal discipline the crisis could return.

German Chancellor Angela Merkel arrives for a press conference at the end of a two-day European Union summit on March 2, 2012 at EU headquarters in Brussels.

Foto: JEAN-CHRISTOPHE VERHAEGEN/ AFP

The closing statement of the European Union summit that the leaders of the 27 member states approved on Friday filled a total of 15 pages. It included 24 mentions of the word "growth," and only referred to a "crisis" once. The language underscores the direction Europe's politicians would actually like to be heading.

"It is time to move from crisis mode to growth mode," European Commission President Jose Manuel Barroso said on the first night of the summit, seeking to set the tone.

"I think we are turning the page," Nicolas Sarkozy, the French president who is currently in the midst of his election campaign, said triumphantly. "We are in the midst of exiting this crisis."

But one leader at the summit wasn't yet prepared to hint that a turning point had been reached. At the close of the two-day summit, German Chancellor Angela Merkel offered words of warning. "We are still in a fragile situation," she said. "We have made progress, but to say that we can now give the all clear -- it would be much too early for that."

Indeed, it seemed as though Merkel was seeking to apply the brakes on the euphoric mood. The calculation behind her move is clear, too: The crisis nations at Europe's periphery shouldn't be permitted to feel overly secure, nor should they let EU-imposed reforms slide. "The next two years will be just as decisive as the last two," Merkel said.

Discipline Required

The chancellor attributes the improved situation to action taken by the European Central Bank (ECB), which recently flooded the financial markets with half a billion euros for the second time in about two months. The cheap money, which the ECB has lent to the banks for three years, should both secure the banks and encourage them to buy government bonds.

But this effect won't last forever. According to Merkel, the euro zone now has "two to three years" to become more competitive and to win back trust. While the chancellor has recognised that the flood of cheap money is potentially dangerous, she's set this aside for now. Care must be taken not to create a speculation bubble, she said upon further questioning. She also signalled, on behalf of the usually independent ECB, an end to the flood of money. "We will surely not be taking any further measures of this kind," she said.

Merkel also insisted upon discipline with regards to the fiscal pact, which 25 EU states signed on Friday. The pact is a signal that the EU is learning the right lessons from the crisis and that it aims to form a closer political union, she said, adding that it's an important step forward. But member countries must keep to the terms of the agreement, Merkel said.

This hardly worked for the last contract of its kind, the Stability and Growth Pact. In that case trust was lost at the latest when Germany and France disobeyed the terms of the agreement numerous times and unravelled the sanction mechanisms.

This time it's supposed to be better. The European Commission will take a stronger role in regulation. From now on sanctions should be applied more automatically -- and the European Court should be able to prosecute debt-limit violations. But Merkel evidently doesn't have full confidence in the pact she herself is pushing forward. "We must prove that we really take the monitoring seriously," she said.