Promises from Berlin

On Sunday in Berlin, Angela Merkel and Nicolas Sarkozy repeated the spectacle they have performed in successive episodes of the EU's financial crisis. They announced that France and Germany have agreed upon a plan to recapitalize EU banks, but left the details and the approval of the plan to the end of October. They promised a prompt ratification of the reform of the European Rescue Fund, but likewise left it postponed until the end of this month, when it was approved as long ago as the end of July. And they promised that, also before November, the two countries will present a package of measures to stabilize the euro zone, but without further specifics.

That is, Sarkozy and Merkel went on with the tactic of calming the markets, though in this respect a much more effective agreement was the one between France, Belgium and Luxembourg to save the Dexia bank. A solution that includes the creation of a "bad bank," equivalent in principle to a socialization of the losses.

Without further specifics, the agreement to recapitalize the European banking system is a satisfactory declaration, but one that's rather difficult to assess. Whichever way you look at it, a second recapitalization is a failure, for it means that stress tests will no longer serve to reassure investors or even the banks themselves because, logically, there is no reason why the one now in preparation should be the last capital injection required by the financial entities. Nothing prevents the bank crisis ? which at first was caused by subprime mortgages and is now due to the deterioration of sovereign debt ? from again manifesting itself in the short term, owing to other causes or weaknesses.

The agreement between France and Germany also calls for a certain strategic reflection, if it is not to become just another joke. France, Germany and the ECB face three problems: that of the banks, implying a recapitalization of between 3 and 4 billion euros to cover the losses caused by the debt crisis; that of the Greek bailout, in which the International Monetary Fund is also involved; and the question of designing an institutional instrument capable of combatting the debt crisis ? that is, the new functions of the Stability Fund. It seems logical to consider that the problem that has to be solved first is that of Greece. Because if it remains unsolved, the deterioration of the Greek debt will go on depreciating bank assets.

France and Germany seem aware of the severity of the crisis, but see less clearly that an important part of its complexity is that it requires quick decisions. So far, Merkel and Sarkozy have been offering the same political mix: sound decisions, but at unspecified time limits, and with no political security. Perhaps the national parliaments may not approve the Franco-German recapitalization plan; perhaps further elections will get in the way. These are short-term, patchwork remedies for a crisis that requires far-reaching decisions and a real European government.