Euro talks: The last signal before the storm?
"At the very end of our dinner I propose we discuss recent developments in the eurozone."
So wrote Herman Van Rompuy in the last paragraph of a long and detailed letter of invitation spelling out the agenda for tonight's informal Euro summit. There's been much ribaldry about Van Rompuy's missive: as if it embodies the very lack of focus, the bureaucratism and awareness-free bubble in which the elite of Europe are trapped.
I read it differently. Van Rompuy had just sat through a G8 summit at which it was clear German intransigence - on both the short and long-term issues that are collapsing the euro - had been demonstrated, isolated but not overcome. This in a room containing Barack Obama, Yevgeny Medvedev and David Cameron. In the polls that followed, the wielder of German intransigence, Angela Merkel, scored her highest ever approval rating with German voters.
What this means - and I think Van Rompuy was making a public signal in his derided letter - is that there is nothing the Euro leaders can do.
To prevent a catastrophe in Greece (as defined by them) they have to give the mainstream parties, New Democracy (ND) and Pasok, enough concessions on the austerity package that they win back voters from the anti-austerity left and right.
It's not just a question of scraping a majority, using the quaint Greek rule that hands 50 extra MPs to the first party: to make its own version of austerity work, ND would have to wage class war against the voting base of Pasok. In any case, as the rest of southern Europe stagnates, and the credit crunch tightens, the dynamics of Greek growth and debt do not look positive.
Francois Hollande, according to Pasok leader Evangelos Venizelos, has offered the possibility of a three year extension to the austerity targets. For that to be a valid offer, it has to pass the EU, the ECB and the IMF in short order and be put in writing. If we come out of tonight's dinner and Merkel has said the German equivalent of "yeah, whatever, lets give that some thought, thanks-bye", then there are few other forums through which such a decision on forbearance could be made.
Meanwhile, the market focus has turned to Italy and Spain. There is clearly a slow run on Greek deposits. Whatever the official stats say, one person whose job it is to monitor the ATMs of Europe told me there had been a "marked increase in cash withdrawals" from Greek banks starting 10 days ago.
As I've written before, this has the ability, on any given day, to provoke a drain of liquidity from the Greek banking system, forcing the Bank of Greece to ask for levels of Emergency Liquidity Assistance that the ECB just cannot countenance. Before or after the vote it could easily be the trigger for technical Greek suspension from the Eurosystem.
Numerous market participants have told me that it is fear of that being the trigger - the detonator more like - of the unexploded mass of bad debt in Spain that is haunting them.
Once Greece goes, most analyses of the exit process say it will be painful but containable, as long as it does not spread. But if non-eurozone investors decide to pull the three trillion euros in sovereign, corporate debt and equity investments from Italy and France - or even a part of it - that would spark a crisis on a scale likely to draw in the banks of non-crisis countries: Germany, France and the United Kingdom.
In the absence of a real firewall to contain Italy and Spain, investors are constructing their own firewalls: banks backing exposures in stricken countries with deposits from those countries; corporates looking to issue debt effectively denominated in "Spanish euros" in order to hedge against the losses contingent on a collapse there. Analysts are calling it de-euro-isation and it's happening, even if only for now as a temporary defence mechanism.
For the Greek left, which the polls show has a decent chance of winning the election now, there are powerful cards to play. Paradoxically, the very effect of the austerity they oppose has been to reduce the Greek deficit to a point where - if Syriza's demand for a moratorium on interest payments were to happen - they could balance their books. This, say experts, is a danger point for all creditors: where the bad debtor reaches a point where they are no longer in a panicked free-fall. Where they can see light at the end of the tunnel if only the terms of repayment could be renegotiated.
In the past two years I've written blog after blog warning that the crisis would spill out of control. I am almost sick of analysis now: there is no joy to be taken from the befuddlement of politicians whose only instinct is to preserve the broken system they've grown up with.
What's clear is that Europe must act. A strategic commitment to fiscal union is one thing. A tactical plan to provide liquidity to the banks through further non-textbook measures at the ECB, respite to the Greek people, a fully-funded firewall of real money to throw at Spain, whether it wishes to be bailed out or not, and probably a pan-EU deposit guarantee (yes, involving the Brits and Danes and Poles guaranteeing the bank accounts of Greeks and Cypriots): this is what's on the table.
If you want a vision of what happens if they umm and ahh and eat Belgian chocolates from here through 17 June, witness last night's events in Patras - footage of which can be seen on Youtube. The far right party Golden Dawn sent six coach loads of its members to attack a migrant camp in Patras, clashing with riot police in front of the horrified Greek media. The same party has 19 MPs.
I know that camp well. Earlier this year I spoke to migrants there, trapped for months under the Dublin II treaty in a city that's coming to hate them. One of them said: "This is not Europe: I've been to Europe and this is not Europe." In a continent where aggregate levels of debt and deficit are still not high; where social cohesion is a way of life and where tolerance is written into the constitution, that's an indictment. Not of the economics but of the politics and politicians.
That's what makes tonight's meeting important: it is "informal" and it's calling notice was stuffed with ephemera. But it could send a signal of decisiveness: of a clear agenda and a crisp tempo of decisions upcoming. If it sends a signal of cluelessness, it's probably the last signal it will send before the crisis hits.