By Anton Brender

What is the legacy of late June’s European summit, which was followed by a significant market rebound? In retrospect, nothing really reassuring. Of course, the idea of a banking union was mooted for the first time. That, however, won’t see the light of day for years to come. Obviously, we could be said to have missed the point here: the prime virtue of this news lay in the path it has cleared to a recapitalisation of the Iberian banks that does not compel the Spanish government itself to get into debt in the process. The very thought of this was enough to provoke outrage in Germany, and the means of recapitalising is, for the moment, far from clear. Same goes for one of the other "positives" of last summit: the possibility of seeing the European Stability Mechanism buy, on the secondary market, bonds of governments that, although up against market pressure, are unmonitored internationally. Even here, Chancellor Merkel tried to explain that nothing had really changed, whereas all Mario Monti managed to do, following a media-driven power grab, was to give the opposite impression for a few hours!

Agreement, however, was reached on one point: growth. On this topic, which, in the weeks leading up to the summit, had provoked heated exchanges between France and Germany, a compromise was quickly agreed on. The problem is that this wonderful unanimity was achieved by means of a smokescreen plan. No one, in fact, can believe that one point of European GDP – comprised mainly, incidentally, of funds already committed – will be enough to get the euro countries out of the mess they have got themselves into. Actually, only a review of the overly ambitious budgetary rebalancing programmes, those of the southern European countries in particular, would make that come true. The intransigence with which Spain has just been asked to impose new restrictive measures shows that we are miles away from such a review and even an acceptance of the reduction of the public deficit to 3% of GDP by 2014 instead of 2013 changes nothing. Nonetheless, the effect of the excessively restrictive fiscal policies hitherto led is now patently clear: against a background in which a country’s export growth is restricted by its competitiveness and by trading-partner demand, a prompt reduction in its public deficit usually implies the collapse of domestic demand and, accordingly, of growth, as Greece, to its cost, has already discovered. There is now the risk of others following in Greece’s footsteps, as can be feared from the worsening economic indicators witnessed over the past few months in Spain and Italy alike.

Spain is a case in point. Since the start of the year, exports have stagnated. Less, as has often been said, because of its low competitiveness – in recent years, Spain’s exports have, lest we forget, mirrored Germany’s – than the fact that growth in global demand, in particular European demand, has decelerated substantially. In such a situation, as private domestic players continue to deleverage, the imposition of ever more restrictive budgetary measures can only lead to an even more pronounced contraction of domestic demand and growth than that seen over the past few months. This will only end up harming the country’s labour and banking markets. Ending this downward spiral before it’s too late is now a matter of urgency. From this point of view, it is to be regretted that, in late June, the heads of State ignored the global slowdown and deterioration in the European economy, failing to agree to halt the pace of the fiscal rebalancing to which each had committed.

We can, of course, hope that this eventually materializes: the European decision-making process is such that it is difficult at any one summit to make a whole series of advances at the same time. Placing the question of growth on hold in an attempt to try to tackle other, even more urgent, questions was maybe a tactical decision. In the coming months, we’ll know whether or not it was a wise move. If, shortly, the European situation worsens further, the markets will begin to worry about and pressure to the most vulnerable countries will mount … The "European growth" problem cannot be swept under the carpet forever!