PARIS — Despite months of urgent summits, repeated rescue plans and merciless budget cuts, European governments remain on the edge of a financial abyss, struggling to meet mountainous debts accumulated over four decades of living beyond their means.
The most immediate danger lies in Greece, where the government is effectively bankrupt, with debts amounting to an estimated 160 percent of the country’s gross domestic product. Negotiations with creditor banks, which have been asked to take a 50 percent loss, are proceeding fitfully in Athens. No one can predict the outcome, but European leaders assert they will not let them fail, and a coalition of creditors said Saturday that a deal might be reached in the week ahead.
European leaders, seeking to restore confidence in skeptical financial markets, announced after an all-night summit in December that they would negotiate a treaty binding governments to limit the perennial budget deficits that are the root of the crisis. After weeks of mid-level negotiations, a proposed treaty has been prepared for presentation at another extraordinary summit, scheduled for Monday in Brussels, an E.U. spokesman said.
That is a record time for the European community, where such negotiations usually move at a snail’s pace. But economists and officials point out that, in the latest drafts, the new treaty changes little from previous anti-debt commitments that over the years were simply ignored by European governments in need of extra financing.
One recent draft, for instance, contained a clause allowing E.U. governments to run deficits above the agreed cap “in periods of economic downturn,” setting the stage for a repetition of what happened to earlier no-deficit agreements. The European Central Bank, smelling a return to old ways, warned against any provision that would allow “easy circumvention” of the new rules.
In addition, the proposed treaty, despite its promise of Europe-wide deficit caps, would take at least several years to bring down government debts. As a result, it would have little effect on the immediate financial crisis, in which Greece is looking for a swift rescue and Italy, Spain and other countries face the prospect of paying back large bond issues coming due over the next few months.