Thursday

7th Jul 2022

Crisis-prone summer as EU officials go on vacation

  • Lehman Brothers headquarters in New York. The bank's collapse in 2008 took the world by surprise (Photo: sachab)

Amid a "clear risk" of potentially seismic events in the eurozone and the Arab world in the next six weeks, EU institutions will drop to staff levels of just 20 percent as officials go on holiday, limiting their capacity to react.

On the financial side, eurocrats can fly to Tuscany - a favoured location - happy in the knowledge that some of the biggest events will fall either side of their break.

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The EU will on Friday (15 July) publish the results of stress tests on 90 major banks.

About 15 are expected to fail and markets to react instantly, by, for example, punishing two Spanish lenders which are to float on the stock exchange the same day.

Member states have already designed "backstop" measures of public and private sector support which they can put into play next week, however. If the results are truly worrisome, they might meet in a summit next Thursday or Friday.

If the summit takes place, markets will also be looking for leaders to say that only public money will be used in the second Greek bailout and that the EU will boost the size of emergency funding mechanisms to cover potential problems in Italy and Spain. Much will depend on Germany, which has been unwilling to move quickly.

The other risky event - an EU-IMF assessment of whether Greece is doing enough to secure its next tranche of aid - will come in late August, when many officials are back.

There is no guarantee the summer will be plain sailing, however.

"The financial markets are not going on holiday ... so I hope EU officials have not bought non-returnable flight tickets," Michael Emerson, an expert at the Centre for European Policy Studies, a Brussels-based think-tank, said.

Analysts note that political developments in Greece or Italy could suddenly aggravate the euro crisis.

Greek public sector workers plan a general strike in early August. One risk is the Greek police - its brutality astonished even Amnesty International last time around. If somebody dies, social unrest could spiral. And there is always a chance that leaders opt for political survival by doing a u-turn on bailout promises.

In Italy, markets will be looking to whether a row between Prime Minister Silvio Berlusconi and his finance minister Giulio Tremonti intensifies, damaging confidence in Rome's ability to manage its huge debt.

Economists, such as Commerzbank's Christoph Weil, also do not rule out a spontaneous market event, such as one or two top private investors moving out of Ireland, Italy, Portugal or Spain and causing wider panic.

"It's a clear risk," Weil told EUobserver. "The ratings agencies already point to a threat of defaults or the need for second bailouts. But if you look at bond spreads at the moment, they are very high - the ratings agencies are behind the curve [compared to the markets]."

Arab summer

In terms of security crises in the EU neighbourhood, all available eyes will be on Libya, Syria and Yemen.

In the east, Belarus' own economic crisis could see basic commodities, such as sugar, disappear from shops increasing "social unhappiness." But political tension in Belarus, Georgia and Ukraine is "stable, in a negative way" according to Nicu Popescu from the European Council on Foreign Relations think-tank.

Tension in Israel will come to a head post-vacation, in September, in a likely UN vote on Palestinian independence.

In Libya, EU leaders would like to see Colonel Gaddafi go. But the prospect of angry rebels overrunning Tripoli could require an immediate injection of EU or UN peacekeepers.

In Syria, the International Crisis Group's Damascus-based analyst Peter Harling says President Bashar Assad could at any moment be toppled by his security forces as he runs out of money, prompting competition for power in a post-Assad Syria by Iran, the Israel/US axis, Saudi Arabia and Turkey. "People in the EU would be dumbfounded because right now he appears quite strong in the eyes of his friends and his enemies," Harling said.

Harling believes that neither the Syrian army nor Hezbollah, Assad's ally in Lebanon, would be willing to start a war with Israel in order to create a distraction from the domestic uprising, however.

In Yemen, the recent fall of President Ali Abdullah Saleh is turning the country into a battleground between Al Qaida in the Arabian Peninsula, US drones and rival tribes, some of which are loyal to Saudi Arabia and some to Iran. "Nobody is talking about Yemen publicly. But it's the most unpredictable and dangerous place in the region in terms of [provoking] a wider conflict," an EU diplomat said.

'Car factory' days are gone

Despite the common perception that the EU sleeps in August, institutions will have four major crisis-monitoring centres running 24/7. The biggest one, the Joint Situation Centre, keeps half its 100-or-so staff in place during holidays.

If the EU needs to make a serious statement, the time-lapse between foreign relations chief Catherine Ashton sending a draft to the 27 capitals on the secure Coreu network and getting the green light is about six hours. If it needs to take action, foreign ministers can be called to Brussels on 48 hours' notice and leaders in three to 10 days' time.

"Things have changed over the past 10 years. We're more flexible. It's no longer like a car factory shutdown," one senior official noted.

"The Georgia war [in 2008] broke out in early August and three or four weeks later we had an operational crisis management mission - people on the ground - with all the planning done in the summer break."

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