Last week, Barack Obama snubbed the Europeans by refusing to attend next May's European Union summit in Madrid. The Europeans are very upset. But that is not the worst of their problems, and neither is the looming bankruptcy of Greece. Analysts fear that Spain might sink the euro, the EU's common currency, and with the euro also the dreams of greater political integration.

At this point Europe is not even halfway into its 100-day political “honeymoon” since the Treaty of Lisbon, which transformed the EU into a state in its own right, came into force. So far the honeymoon has been a nightmare. Since the beginning of the year, the EU's currency, the euro, is on the brink of collapse; Greece has been placed under EU financial supervision to prevent it from going bankrupt. Now U.S. President Barack Obama has announced that he will not attend next May's EU summit in Madrid. It was to have been Obama's first visit to post-Lisbon Europe - the consecration of the new political order.

Washington informed Brussels last week that Obama is not coming because it is not clear who is his European counterpart. Since the [CUTOFF] Lisbon Treaty came into force on January 1st, Europe has its own President, Herman Van Rompuy. This former Belgian politician chairs the European Council, the assembly of the heads of government of the 27 EU member states. However, there is also José Manuel Barroso, a former Portuguese politician, who is the president of the European Commission, which is the EU's executive body. And there is José Luis Rodriguez Zapatero, the Spanish Prime Minister, who is hosting the Madrid meeting and as such co-chairs the summit meeting of the EU heads of government with Mr. Van Rompuy.

Messrs. Van Rompuy, Barroso and Zapatero all want to be the first to shake Mr. Obama's hand and receive the deep bow which the American President is in the habit of making to foreign leaders. Because of the embarrassing intra-European squabble about who should have the honor, Obama has declined the invitation until the Europeans have figured out which of them is the most important.

Obama's decision has come as an unexpected blow to the European leadership. It has upset them so much that they are considering postponing the summit to the autumn. Meanwhile, they have begun quarreling about who is to blame for the present debacle. The Europeans generally agree that the vainglorious Zapatero is mostly to blame, but others are damaged more. “The Spanish have made a mess of the summit but Van Rompuy and the post-Lisbon EU institutions will carry the can in the long term. The squabbling has damaged the EU in the eyes of the most powerful nation in the world,” a senior EU official said.

Although Obama's snub hurts Europe's pride, the euro's monetary problems are far more serious. They not only affect Europe's finances and economy, but may also tear down the political EU framework. When the European Commission placed Athens under EU supervision last week, Greece was almost bankrupt. Brussels has forced the Greek government to present a plan to drastically reduce its budget deficit from 13% to 3% by the end of 2012. The plan will cost the Greeks blood, sweat and tears. It includes a freeze on civil service wages and the postponement of retirement. Brussels invoked new EU powers under Article 121 of the Lisbon Treaty, which allow it to reshape the structure of Greece's pensions, healthcare, labor market and private commerce.

“The envisaged correction of the deficit is feasible but subject to risks,” says EU Commission President Barroso -- an understatement. The Commission fears a backlash from the Greek unions, who might organize strikes and bring down the Greek government. Trade unions in other countries are nervous, too. They warn that it is unacceptable for the European Commission to intervene in setting national wages.

The EU's Monetary Affairs Commissioner Joaquin Almunia declared that the Greek targets will be enforced strongly and that, if necessary, even more draconian measures will be taken. “Every time we see or perceive slippages, we will ask for additional measures to correct these slippages. Never before have we established so detailed and tough a system of surveillance,” Almunia said. He has demanded quarterly updates on progress towards reduction targets, as well as a first report on 16 March. “This is the first time,” he said, “we have established such an intense and quasi-permanent system of monitoring.”

Much is at stake. In the coming weeks, the strength of the euro will depend on whether the markets believe that the government in Athens is strong enough to implement the reforms, or trust that the other eurozone countries will bail out the Greeks. This year the eurozone governments have already borrowed a record €110bn from the markets, thereby forcing up the cost of borrowing for countries with the weakest public finances, such as Greece, Portugal, Spain, Ireland and Italy.

Nobel Prize winner Joseph Stiglitz warns that the plan to slash Greece's budget deficit could end up stifling the country's economic growth. He said that the whole eurozone should share responsibility for the Greek situation. This view is not shared by other economists. Otmar Issing, a German economist and a founding member of the European Central Bank (ECB), points out that successive Greek governments have for years falsified the Greek budget figures in an attempt to deceive Brussels and the eurozone monetary authorities, such as the ECB. What is happening today is the result of “years of violating rules, cheating on figures, financing consumption, public and private, by huge debts - this is a way which has to be stopped,” Issing told the BBC. “Any sign that help might come would undermine the efforts which are needed to reform the Greek economy.”

For political reasons, too, a bailout would be counterproductive. “German and French taxpayers cannot pay for Greece,” Rainer Brüderle, Germany's Economy Minister, said at the World Economic Forum in Davos. A bailout would mean that the taxpayers in one country are liable for the failures and mistakes of a government in another country. This will not be accepted in countries such as Germany, who will have to foot the bulk of the bill. Axel Weber, President of the German Bundesbank and a member of the ECB Executive Board, told the German financial paper Boersen Zeitung: “Politically, it would not be possible to tell voters that one country is being helped out so that it can avoid the painful savings that other countries have made.”

Bailing out the Greeks will lead to a surge of anti-EU feelings in other countries. The alternative is to allow Greece to default on its debts. This, too, would have devastating consequences for the euro and affect all the countries in the eurozone. Hence, there seems to be only one way out: Greece must leave the eurozone. Legally, however, a country cannot be thrown out of the eurozone. Nevertheless, the British economist, John Kay, wrote in the influential German financial newspaper Handelsblatt that “if there is political will, it [i.e. throwing the Greeks out] might happen. Bureaucrats, lawyers and bankers would solve the technical difficulties. Central bankers cannot afford not to have an emergency plan for that.”

Even if the situation in Greece can be stabilized, the EU's nightmare is far from over. The next eurozone dominos that might fall are Portugal and Spain. Portugal's deficit reached 9.3% of GDP last year, Spain's 11.4%.

Greece and Portugal are small countries. No matter what happens, they will not break the euro, writes Wolfgang Münchau, the associate editor of the Financial Times. The Greek situation may even be considered as something of a joke. “European farce descends into Greek tragedy” and “Spartan solutions from Brussels will be fought by Athens” are two titles of recent articles by Münchau. However, Spain, the eurozone's fourth-largest economy, is another kettle of fish. “The clear and present danger to the eurozone is Spain,” says Münchau. “Spain, like Greece, has suffered from an extreme loss of competitiveness during a period in which it relied on a housing bubble to generate prosperity. While the Greek government is at least beginning to recognise the need for reform, perhaps too late, Spain's political establishment remains in denial,” he writes.

His pessimism is shared by Professor Nouriel Roubini of the Stern School of Business at New York University. He says that Spain poses a looming and serious threat to the future of the eurozone. “If Greece goes under, that's a problem for the eurozone. If Spain goes under, it's a disaster,” he told the World Economic Forum's annual meeting in Davos.

If Brussels puts Madrid under EU supervision or forces Spain out of the euro, the repercussions for Zapatero will be worse than missing a photo-op with his political hero, Barack Obama. However, in this matter, too, the man who is to blame most for the debacle, is not the one who will suffer most harm from it. It is unlikely that the euro can survive a Spanish catastrophe. It looks as if 2010, which should have been the year of its triumph, is going to be an annus horribilis for the EU.

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