Charlemagne's notebook

FOREIGN affairs is back at the forefront of the European Union, for the moment at least. The euro crisis is in a chronic rather than an acute phase, and no big decisions on the euro are expected at Friday’s summit. Time, then, to consider the political crises around the EU’s rim, from Belarus’s rigged election and violent suppression of opposition protests, to unrest in Albania and, of course, the spread of the anti-government protests—the “jasmine revolution”—across North Africa and the Middle East.

These represent a big test of the ability of the External Action Service, the EU’s “foreign ministry” headed by Catherine Ashton, to respond to unexpected events. Twice yesterday, the baroness spoke before the cameras. On the way to a meeting for foreign ministers in Brussels, she made no mention of the need for Egypt to hold “free and fair elections”. Only at the end of the meeting did she come forward with this exhortation.

One draws two lessons from this. First, for a foreign minister Baroness Ashton is strangely allergic to the media, especially what her officials call the “Brussels bubble". She has reluctantly had to step into its the limelight because of the pressure of events and because of complaints about her lack of visibility. French papers have resumed the stream of criticism of the baroness, whether for allegedly stitching-up top jobs (in French) in favour of Britain and its allies, or because of her alleged lack of vision. “Mme Ashton est nulle” (“Mrs Ashton is useless”), Le Monde reports (in French) one senior French official as saying.

Second, she is averse to showing leadership to her fellow foreign ministers*. Even as the Americans had shifted their position at the weekend to call for an orderly transition to democracy in Egypt, and even after the leaders of Britain, France and Germany issued a joint letter calling for elections, Mrs Ashton was reluctant to call for a free ballot. Diplomats say this is because she feared she did not yet have consensus among the 27 states. Is this admirable respect for smaller member states, who had not yet expressed themselves, or is it a worrying timidity?

The statements issued at the end of the meeting offer some intriguing contrasts. The foreign ministers announced a visa ban and asset freeze against senior Belarussian officials and confirmed similar measures against the Ivory Coast’s president, Laurent Gbagbo, and his entourage. They announced their intention to impose “restrictive measures” on members of Tunisia’s former regime. Officials say this means a freeze of assets, starting with those of ex-president Zine al-Abidine Ben Ali and his wife, Leila Trabelsi. “The council salutes the courage and determination of the Tunisian people and its peaceful struggle for its rights and democratic aspirations,” said the ministers.

The words for Egyptian demonstrators were more guarded. “The council recognizes the legitimate democratic aspirations and grievances of the Egyptian population. These should be listened to carefully and addressed through urgent, concrete and decisive measures.” There were no sanctions imposed on President Hosni Mubarak, even though scores of protesters have been killed by his security forces and even though his rule has been far from democratic.

Why the difference? In part, this is because Tunisia’s leader has fled and the current government has asked for the seizure of his assets, while Mr Mubarak remains in office. In part, also, the reason is that Tunisia is seen as much more secular than Egypt. There is an unmistakeable worry that the main beneficiaries of a genuinely free and fair election in Egypt would be the Muslim Brotherhood.

The Egyptian wing of the movement today proclaims itself to be peaceful and democratic, but the Brotherhood has in the past produced violent jihadist offshoots. The Palestinian branch of the Brotherhood, Hamas, turned violent in the 1990s and popularised the use of suicide bombings—and then won Palestinian elections. It still runs the Gaza strip, despite Israel’s blockade.

Israel is plainly alarmed by the prospect of Islamists taking power on their border, even though its prime minister, Benjamin Netanyahu, was once a loud advocate of democracy in the Arab world, calling it a precondition for peace. William Hague, Britain’s foreign secretary, concedes that the situation is “fraught with danger” but argues that, in the end, the outside world had to show “faith in democracy”.

* An error meant this sentence originally appeared incorrectly as "Second, she is averse to showing leadership to her fellow foreign ministers."

IN DECEMBER the leaders of countries using the euro declared that they stood “ready to do whatever is required to ensure the stability of the euro area as a whole”. One month on, they are plainly not ready to agree on what needs to be done. This week's meetings of finance ministers from the euro area, and then of the European Union, broke up without agreement.

The latest round of bickering may yet lead to the crystallisation of a new, elite club comprising the six euro-area members with a AAA credit rating: Germany, France, Austria, the Netherlands, Finland and Luxembourg. Call them the AAA-6, or the A-Team.

One can sympathise with the argument of Germany's finance minister, Wolfgang Schäuble (pictured above, right), that, rather than rush more half-measures, it would be better to have a comprehensive package that, in the words of one German official, “answers all the questions”. Indeed, the questions are many, and interconnected.

Here are just a few of them: are Europe's bail-out funds big enough? Should they do more than save countries at the point of collapse? Should they, specifically, take over the European Central Bank's emergency bond-buying role? Are bailed-out countries paying too punitive an interest rate? Will Greece, in particular, need to restructure its debt even after its bail-out? If so, can Europe's banks take the hit?

The European Commission says time is short. Markets may fall back into a frenzy at any moment. It wants progress at the next summit of EU leaders in February. Germany says more time is needed, and is aiming for a deal at the following summit, in late March. José Manuel Barroso, the commission president, thus finds himself once again publicly at odds with Angela Merkel, as he was last May when he urged her to move faster to rescue Greece.

Size matters

The most immediate question centres around the market's doubts about the ability of the EU's bail-out funds, worth €750 billion (including a €250 billion chunk from the IMF), to save Portugal, which is close to financial seizure, and Spain, which is at risk of contagion, while having money left over for other contingencies.

Belgium has called for the EU to double the funds, to €1.5 trillion. Willem Buiter, chief economist at Citibank, reckons [PDF] €2 trillion is what is needed. Such figures make euro-area countries, particularly the A-Team, blanch.

Nobody will want to pay for such a bazooka. But Germany has said it is ready to consider ways of making the current weapon more credible. The biggest of three pots of bail-out money is the €440 billion European Financial Stability Facility (EFSF), a special-purpose loan fund created last May by member-states. Each country contributes a quota of loan guarantees, to be drawn upon when the fund is activated, for example to rescue Ireland last year.

The trouble with the EFSF is that it can lend only about €250 billion while maintaining its AAA rating. Raising its lending capacity to the official ceiling would provide an extra €200 billion.

But how to do it? The obvious way to increase its firepower is for everybody, particularly the AAA-rated countries, to offer bigger guarantees. But this could be contentious in Germany. Another is to increase the fund's cash content. One German official suggested that A-Team countries could offer more guarantees, while the B-team could put in more cash.

Everybody is pulling out calculators and preparing arguments for why others should pay more. Giulio Tremonti, the Italian finance minister, told colleagues that Italy's share of the Greek and Irish bail-outs was already disproportionate to its banks' exposure to the debt of those two crippled states.

Flex that muscle

Even assuming that the EFSF is made bigger, there are questions about its future actions. Should it, for example, issue short-term credit lines to countries facing liquidity problems?

Another question is whether the EFSF could buy bonds of vulnerable members. Such action in the bond markets by the ECB has doused the fire but is unpopular on the ECB's board. Would it be better for the EFSF to take it over, leaving the ECB free to concentrate on its core tasks of managing monetary policy and watching out for inflation?

The opacity of the ECB's bond-buying has an advantage. It has stayed out of the public eye, and has kept the market guessing about when and how it would intervene. Handing over the role to the EFSF may make it more public, so more contentious in AAA countries.

One idea is that the EFSF could lend money to countries such as Greece to buy their own bonds. This would be more palatable, but may amount to a form of debt restructuring. Germany and Greece have both denied reports that such a proposal has been under discussion.

Greek wobbles

As The Economist noted last week, Greece is bust. Even after its bail-out, it will end up with such a large mountain of debt that it will never be able to repay its creditors. For now, though, everybody rejects the idea of debt restructuring, for fear of the knock-on effects across Europe.

One idea being pushed by Ireland, which may benefit Greece too, is to reduce the interest rate being paid by the two countries. This was deliberately set high—about 3% higher than the EU's cost of borrowing—to reduce the danger of moral hazard. The problem is that, by making it harder for countries to get back to a sustainable level of debt, it makes restructuring more likely.

Don't bank on it

The weakened state of Europe's banks is a common thread through the sovereign-debt crisis. The bursting of property-price bubbles crippled banks in Ireland and damaged Spanish ones too. The banking sector, moreover, is a channel of contagion. Any plan to restructure the debt of Greece or Ireland will have to consider the effect it would have on European banks.

The EU is preparing a new set of bank stress-tests that, it says, will be more rigorous than last year's exercise, now discredited because it failed to detect the full scale of the horror in Ireland's banking system. The precise methodology is being discussed, with questions about whether scenarios will include the prospect of sovereign default or debt restructuring in the coming years. Other questions are how the new liquidity standards in the Basel III regulations on banking will be incorporated, and, more importantly, whether the results of the tests will be published.

In short, the question is whether governments really want to hear the bad news, and whether they are prepared to do what it takes to re-organise and recapitalise the banking sector. This, in turn, could raise further questions about public finances.

2013 and beyond

All these discussions are coloured by the debate about what the permanent bail-out fund will look like when the current one expires in 2013. Conversely, decisions about changing the EFSF will set a precedent for the future system.

The EU is pushing for treaty change to allow a new mechanism to be set up. It also wants to make it easier to restructure the debt of countries that, in future, are deemed insolvent. This is supposed to apply only to new debt issued after 2013, with collective-action clauses that make it easier to reach agreement on imposing haircuts on bondholders. But it is reverberating back to today's market conditions, as holders of Greek, Irish and other peripheral debt fear they will be wiped out.

Whether a deal is done in February or March, it is hard to believe that all of these questions will be settled.

AFTER three days in Budapest, where Hungarian ministers have been asked about little else apart from the media law, it is still hard to understand why Viktor Orbán and his Fidesz party felt the need to push through such sweeping and contentious measures.

One minister said they were necessary to protect people’s “dignity” on reality television, or to shield children from sexually explicit scenes on TV; another said the bankrupt and leaderless Hungarian public broadcaster had to be reformed; yet another spoke of the outrage at Hungarian newspapers publishing the picture of a footballer, Miklós Fehér*, who died during a match in Portugal (even though it happened before thousands of fans and the video is widely available on YouTube).

None of this seems to merit 200-odd pages of legislation, the amalgamation of the newsrooms of all publicly-funded media, a Fidesz-appointed council to oversee all of television, radio, online and print media, with the threat to impose heavy fines for ill-defined offences. Mr Orbán says all of the law’s provisions are drawn from the laws of other countries. Even if he is right, there is the danger of picking all the most rotten bits of Europe’s media legislation.

The English translation of the legislation, a media “constitution” (PDF) and a more detailed media act (PDF) is available on the justice ministry’s website, along with a commentary (PDF) seeking to rebut criticism. What is one to make of Article 13, setting out the obligations of the media, which seems to be both all-encompassing and oddly chauvinistic? If journalists have to provide accurate and balanced information on Hungary and the Hungarian nation, do they not have the same obligation towards other countries and nations?

(1) All media content providers shall provide authentic, rapid and accurate information on local, national and EU affairs and on any event that bears relevance to the citizens of the Republic of Hungary and members of the Hungarian nation.

(2) Linear and on-demand media content providers engaged in news coverage operations shall provide comprehensive, factual, up-to-date, objective and balanced coverage on local, national and European issues that may be of interest for the general public and on any event bearing relevance to the citizens of the Republic of Hungary and members of the Hungarian nation.

In private conversions with Fidesz ministers, the visitor begins to sense an underlying drive to refashion society, a desire somehow to complete the anti-Communist revolution of 1989. Hungary had a surprisingly peaceful negotiated transition to democracy. But for Fidesz the compromises made at the time led to the rot of recent years. In the view of Fidesz, the communists were never ejected; in return for surrendering political power, they were allowed to retain economic power and re-invent themselves as the Hungarian Socialist Party.

The socialists’ poor job of running the country for eight years was encapsulated in the tape-recording of the-then prime minister, Ferenc Gyurcsany, admitting in 2006: “I almost died when for a year and a half we had to pretend we were governing. Instead, we lied morning, evening and night.”

For Fidesz, the election victory this year is the latest round of a battle that began in communist times. And now that Fidesz has a two-thirds majority, it claims finally to have the mandate and means to complete the job. The media law is just the latest in a series of actions to grab power. Fidesz says it will pass a new constitution to replace the existing one, dating from communist times. For Mr Orbán, Fidesz’s actions are unimpeacheable; they are the real democrats, they defeated the communists, and they know what is right for the country.

In theory, the presidency should provide a check on the government, except that the current holder of the job, Pal Schmitt, an Olympic fencing gold-medallist from 1968 and 1972, seems to view his role as Fidesz cheerleader-in-chief.

 This is what he told the visiting Brussels press corps today:

Last year the Hungarian citizens gave a mandate that is unprecedented on the European scale to the political forces that now form the parliamentary majority and government. It was this force, this will that elevated me into my current office.

I know that the working tool of journalists is news, but perhaps even more, it is the truth. The truth, the good news is: that Hungary today has a government with huge public legitimacy, extremely strong parliamentary majority, that is capable of overcoming the economic difficulties and capable of establishing order.

 The mandate given at the democratic elections is not only huge in terms of its proportions but it also reflects the expectations of Hungarians, the extent of the sovereign power, legitimacy transferred. The majority of my compatriots have not only said no to the past, but have also stated what they think the future should be like.

 I look at the processes that have taken place in 2010 as a great sigh of Hungarians, with which we wanted to exhale the poison that held everything back and to inhale fresh, invigorating oxygen. This sigh demanded order. Order in the way the state functioned, discipline in finances, and justice in laws and procedures. It demanded the recovery of the economy and the health system, the protection of jobs and families.

 It is this peaceful making of order that is required for Hungary to become stronger. For a strong Europe can only be made up of strong nations.

How far this re-ordering of Hungary will be pushed, and what sort of society Fidesz wants to establish, is left vague. Mr Schmitt says he wants the new constitution to acknowledge the central place of Christianity (though Fidesz spent a long time showing us journalists the revival of Jewish culture). Mr Orbán, for his part, is keen to have a constitutional brake on government deficits and debt.

 Clearly, for Mr Orbán strength is a virtue, His slogan for his presidency of the EU is “Strong Europe”. For the rest of Europe, though, his strength is starting to look like authoritarianism. The media law has attracted an unwanted spotlight and Mr Orbán is now under close observation.

 Over a long dinner assisted by the expertise of the specially-appointed “EU presidency sommelier” one minister first claimed the media law was no different from other European countries. He later admitted that it was, indeed, more stringent than similar laws elsewhere. “You have to understand, this is central Europe, where there is anti-Semitism and anti-gypsy sentiment. The government has to protect people.” By the time the sweet Tokaji dessert wine was poured he conceded: “OK, we fucked it up."

* The name of Miklós Fehér has been corrected since this post. My thanks to eagle-eyed Quitz. I've taken the opportunity to restore the accent to Viktor Orbán.

HAPPY new year to readers of this blog. I am in Budapest for the customary press trip at the start of a new EU presidency.

Given the furore over Hungary’s new media law, it has not been a good start of the year for Viktor Orbán, the Hungarian prime minister, as he himself admitted at a press conference this morning. "I agree this is a bad start. Who would want a start like this? But I did not write the script. We adopted a law we considered to be perfectly OK, but the world criticised us… There is nothing we can do to change it. We will protect the law and I will protect our national policies."

Such is the combative stand of Mr Orbán. Having flown scores of journalists to Hungary (The Economist is paying its own bill), Mr Orbán risked letting the beast into his house. But far from being devoured, he played the lion-tamer: part verbal whiplash, part soothing and calm.

Journalists, he said, had every right to criticise his media law. But governments played by a "different traffic code" and had no right to tell Hungary to change its legislation. Germany has warned Hungary that, as EU president, it has "a special responsibility for the image of the European Union as a whole". France has asked for the law to be modified.

Such calls, says Mr Orbán, are "unnecessary and too hasty". Worse, they are an "insult" to Hungary. Still, the prime minister left himself ample space to modify the legislation if the European Commission formally concludes that it breaches EU law. This seems unlikely. Commission officials have been explaining this week that the EU’s charter of fundamental rights does not apply to national policies; it only covers the actions of European institutions, or of member-states when they are enacting EU laws.

And if the commission does demand changes, Mr Orbán says, other countries should by rights also amend their media laws. That is because the Hungarian legislation has been inspired by the laws of other unimpeachable European democracies.

"If this passage of the Hungarian media act should be amended, then the media laws in France, Germany and the Netherlands should be changed too, as there is nothing in our legislation that is not in their media laws. I defy anyone to find anything in our law that is not in other EU member states' media laws."

Was Mr Orbán offended by comparisons that have started to crop up between him and Russia’s prime minister, Vladimir Putin, as well as the Belarusian president, Alyaksandr Lukashenka?

"From 1998 to 2002 [Mr Orbán’s first stint as prime minister] the western press said I was reminiscent of Hitler and Il Duce. Now they compare me with Putin and the Belarusian president. I will leave it up to you to decide if this is progress or not… Personally I am not hurt by such remarks but I think it hurts, it is insulting to Hungary. Hungary is a democratic country."

Listening to Mr Orbán connect his present troubles with his anti-Communist past, one gets a sense of a man convinced that he has right on his side. Armed with a two-thirds majority in parliament, he seemed this morning to be on a mission to transform the country after the mess that the previous Socialist government had left behind.

Yes, he said, there have been controversies over many of his policies, including taxes on big businesses, turning down IMF strictures, and extending citizenship to ethnic Hungarians in neighbouring countries. But critics were ignoring his achievements: the deficit had been sharply reduced (3.9% of GDP in 2010) and the national debt would be brought down to about 70%-73% of GDP by 2014. The labour market was being made more flexible, and Hungary wanted to become "as competitive as China".

What's more, Hungary’s previously "unmanageable" relations with Slovakia had improved; the two countries would soon sign an agreement to build a gas interconnector to improve energy security. The constitution is an interim law dating from communist days in 1949; only now does Mr Orbán's Fidesz party have the majority to change it.

As my colleague notes, the Putin comparison is discordant. No Hungarian journalists have been murdered. In his pugnacious manner, Mr Orbán is perhaps more reminiscent of France’s president, Nicolas Sarkozy (who of course has Hungarian roots—in Budapest they like to pronounce the name the local way: "Shaar-kozy"). But now, with his flawed media law, Mr Orbán may also be taking on something of Italy’s Silvio Berlusconi.

AT breakfast with José Manuel Barroso this morning, the signal is that some kind of general promise to increase the size of the European Union’s bail-out fund, should it be needed, may yet be made by the EU.

The president of the European Commission, the EU’s civil service, read through the seven-point declaration (see my earlier post) that, he said, now represents the “consensus” of the summit. Negotiations were taking place to include them in the body of the final communiqué later today, including the pledge to provide "adequate financial support” for the European Financial Stability. “This is a very important commitment,” said Mr Barroso, “I hope it will be adopted today.”

At last night’s press conference Herman Van Rompuy declined to be this specific when asked whether the fund would be increased as the Belgian presidency, among others, has called for. Mr Barroso talked up the “radical” changes adopted by the EU in response to the crisis, repeating the now-standard phrase that European leaders were “ready to do whatever is required to ensure the stability of the euro area”.

But nobody will say what may be required, and the leaders will certainly not talk of specific figures for the fund. This, say senior officials, would only create a "self-fulfilling prophecy" that there is more trouble brewing in the euro zone.

NEIN, nee, ei. Whatever language one chooses, the reply of fiscally austere northern European countries tonight to demands for a more ambitious response to the euro crisis is: no. As European leaders meet for their end-of-year summit in Brussels, Germany, the Netherlands and Finland are among those that think the most important action is greater economic rigour.

That means no to issuing joint eurobonds, no to making the European Union’s bail-out fund larger and no to making it more flexible (eg by using it not just as a last resort to save crisis-hit countries, but to issue short-term loans or even buy up loans from “peripheral” countries).

Instead, the leaders want the summit to finish what it started: agree the language of an amendment to the European treaties that would allow the temporary bail-out fund to be made permanent, and sketch out the details of how and when to restructure the debt of overstretched countries.

When I told the BBC World Service this morning that this was the agenda for the summit, the presenter’s reply was: “That’s boring, isn’t it?” I suspect that, similarly, markets may regard this as an inadequate response to the crisis. And if the markets think so, then it probably is inadequate, if only because the interest rates that investors demand to hold the debt of the most vulnerable countries could start to rise again – perhaps in the coming days of low trading volumes. Spain had to pay substantially higher interest this week when it sold its last batch of bonds, following the threat of a ratings downgrade from Moody’s.

A small “yes” has been forthcoming, albeit indirectly from Frankfurt, where the European Central Bank announced it would double its capital from €5.76 billion to €10.76 billion. One assumes this is a measure to strengthen its ability to continue buying bonds of distressed countries­ - the one short-term tool that is being used to calm the markets - and insure against possible losses.

It is a sign of how fast the crisis has evolved that the treaty change should already be discounted as insignificant. It was a big deal when it was announced at the last summit in October, and the wording remains contentious tonight.

A quick recap: Angela Merkel demanded, and got, agreement to amend the treaties to allow the European bail-out funds –the €440 billion ($580 billion) European Financial Stability Facility (EFSF), plus a €60 billion fund run by the European Commission - be made permanent. The reason is that she feared that Germany’s constitution court would declare the EFSF in contravention of the “no bail-out” clause in the treaties.

In exchange for a permanent fund, the Germans also want a way of imposing losses on bondholders so that taxpayers do not always have to bear the risk of bailing out over-indebted states.

For some legal background, readers may want to look at this column. For details of restructuring, see this post and this article from the magazine.

The draft text proposed by Herman Van Rompuy, president of the European Council (the grouping of the EU’s leaders) for adoption by the leaders states:

The Member States whose currency is the euro may establish a stability mechanism to safeguard the stability of the euro area as a whole. The granting of financial assistance under the mechanism will be made subject to strict conditionality.

The key features are:

• the fund would be set up by member-states, so will not be a commission instrument. It would incorporate both the EFSF and the commission’s separate fund
• it would be set up by euro-area members, so does not involve countries such as Britain
• the enabling paragraph is inserted into Article 136, which sets out provisions for the euro area only. It does not amend Article 125, the “no-bail” clause
• any loans made are subject to “strict conditionality”, so are not an easy way out for countries in trouble

In tonight’s debate there have been at least three sets of objections to this language, though none seem insurmountable.

First come the Germans, who want it to specify that financial assistance provided by the fund should only a “last resort”. The word is that they have settled for an assertion that it would only be used when “indispensable” to preserve the euro-zone.

Another unhappy country is Britain, which has demanded a guarantee that bail-outs after 2013 will no longer be based on a creative interpretation of Article 122, which allows financial help to be extended to a country that is “in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”.

Britain’s objection is that Article 122 involves all 27 members of the EU, not just the euro area. Last night British officials said that David Cameron, the British prime minister, had secured a deal to the effect that Article 122 “need not and should not” be used for financial bail-outs. They did not say “will not”. In short, this is a political commitment, not a legally-binding one.

Finally, Finland is among those who would like an explicit commitment that any use of the permanent bail-out fund be made subject to unanimous decision by the euro-area members, as currently applies to the EFSF. It should be subject to any kind of majority vote.

THE barber can put the scissors away for now. European politicians have given in to the tantrums of the markets: the threat of an ugly haircut for bondholders has been postponed for several years. Such is the conclusion one draws from Sunday's extraordinary meeting of European finance ministers. Whether it is enough to pacify the distressed markets as they re-open today, after dumping the bonds of the most vulnerable countries and sending their interest rates soaring, is a different matter altogether.

Ministers tried to soothe the wailing with two (actually, three) promises: first, they drew up an €85 billion ($113 billion) package [PDF] of loans for Ireland to try to quell the immediate crisis. Second, they quietly agreed to consider extending the three-year repayment period for Greece, which was bailed out in May, to match the more generous loan term for Ireland. Third, they issued a promise that, under a future mechanism [PDF] to resolve debt crises, holders of European government bonds were not in danger of losing their investment any time soon.

The Irish package is a complex mixture of contributions. €35 billion will be required to restructure Ireland's collapsed banking sector. Of this, €10 billion will be issued immediately, and the rest will be available as a contingency fund. A further €50 billion will be used to assist the state budget. Ireland will provide €17.5 billion of the overall sum from its own reserves (including pension-related funds). The rest, €67.5 billion, will be divided equally among the International Monetary Fund, the European Commission and the European Financial Stability Fund (EFSF), a special-purpose fund created by euro-zone countries in May, augmented by extra contributions from Britain, Sweden and Denmark.

The interest rate that Ireland will pay ranges from 5.7% to 6.05%. The overall rate, said Ireland, would be about 5.8%, higher than the roughly 5% paid by Greece. But the repayment terms are more generous. According to Christine Lagarde, the French finance minister, the loans will stretch over ten years: three years without repayment, followed by repayments over about seven years. The ministers said they would consider extending Greece's repayment period to match this, an implicit admission that the conditions imposed on the Greek government were unrealistically severe.

The latest phase of the crisis began with the decision by European leaders last month to create a “permanent crisis resolution mechanism”. This would involve making permanent the temporary EFSF, while also demanding that bondholders take some of the pain. The burden of helping troubled countries could not fall only on the taxpayer, said Germany. Fearing the imposition of “haircuts” (a reduction in the value of bonds), investors dumped the debt of the most vulnerable countries, notably Ireland and Portugal, in turn spreading alarm that others could be infected by the crisis.

In their decision last night, finance ministers tried to assuage the markets. Only new bonds issued by euro-zone states after 2013, which will all carry identical new “collective action clauses” (CACs), would be at risk of having the bonds restructured. This could be done through a standstill in repayments, extension of maturity, interest-rate cut or, in the most severe cases, the dreaded haircut.

Other measures were designed to make this prospect seem even more distant. A troubled country's finances would first have be studied by the European Commission and the IMF. Those deemed able to repay their loans would receive help from European partners, subject to strict conditions. Only “in the unexpected event that a country would appear to be insolvent” would it be told to negotiate a restructuring plan with its creditors. And given that bonds with the new CACs will only start to be issued from July 2013, and that it will take some years for a substantial part of the outstanding borrowings to evolve into the new restructurable sort of debt, it would seem that bondholders do not face a significant threat for several years, perhaps not until around 2020.

Moreover, any restructuring would take place in accordance with the IMF's current policies. In other words, the holders of European bonds will not be subject to cruel or unusual punishment. The risk of haircuts is no greater in Europe than in other parts of the world. In short, big bad Angela Merkel, Germany's chancellor, did not really mean all those nasty words about making the private sector bear the pain of irresponsible lending to irresponsible countries.

Will all this assuage the cantankerous markets? Like a suspicious child, they will be acutely aware of any hint of doubt or inconsistency in mum and dad's kind words.

Take the comments by Olli Rehn, the EU's economic-affairs commissioner, who said there should be a new set of bank stress-tests next year, not just in Ireland but across the EU. This is an admission that the last lot of European stress-tests were flawed, in turn casting doubt on the heath of the banking sector, in turn raising the prospect of more banks having to be recapitalised by taxpayers, in turn increasing the danger to public finances.

Mr Rehn, moreover, was adamant that senior bondholders of Irish banks due for restructuring would not have to take losses, an option that the Irish government had been considering. "There will be no haircut on senior debt, not to speak of sovereign debt,” declared Mr Rehn. The Irish Times reports that Brian Cowen, the politically crippled Irish prime minister, explained that the EU would not agree to such a radical course because it could destabilise the European financial system. There was no “political or institutional support” for the idea, he said.

In other words, European banks are highly vulnerable to any losses incurred on the bonds of either the Irish government or Irish banks. Punishing the private sector, as Mrs Merkel has mused, would risk punishing Europe as a whole.

Another sign that all is not well is the hint by Didier Reynders, the finance minister of Belgium, which holds the EU's rotating presidency, that the successor to the EFSF would have to be bigger. He did not quite spell it out that way, but his comment that “we need to have the largest size possible...to be able to give an answer to the crisis”, backed by Mr Rehn, seems to confirm reports of behind-the-scenes pressure to increase the size of the bail-out fund—if not immediately, then at least when a permanent one is created in 2013.

If Europe's finance ministers are not sure sure they have stopped the rot in the banks, and are not sure they have enough resources to deal with future crises, why should investors think otherwise?

IN BUCHAREST in 2008 they fell out over whether to allow Ukraine and Georgia to begin the formal membership process to join NATO. In Strasbourg-Kehl in 2009, they barely patched up the row over the appointment of Anders Fogh Rasmussen as the alliance’s secretary-general, in the face of objections of Turkey. This year Lisbon, the NATO allies seemed to agree on everything. Bad for journalists, but perhaps better for transatlantic relations.

First off, NATO agreed its new “strategic concept” on November 19^th. This is intended to be the underlying philosophy of the alliance for the coming years. In the prolonged dispute over whether to concentrate on territorial defence of NATO countries, or on expeditionary missions in Afghanistan, NATO said the allies had to be able to fight both kinds of campaigns and more, not least cyberwarfare. The simmering row over Germany’s call to remove nuclear weapons from European soil was overcome with a compromise that NATO would strive for a world free of nuclear weapons, but until then it had to remain a nuclear-armed alliance.

Then came the debate over Afghanistan but this was, similarly, largely consensual. The “transition” from NATO forces to Afghan security control will pick up pace from next year, district by district, province by province. There is little real novelty here. Transition has been much talked about for a year or more, and the Afghan capital, Kabul, is already under nominal security control of the Afghan government.

The aim of completing the transition by 2014 is distant. To the Americans, this is an objective to be aspired to, and will depend on conditions on the ground. Regardless of conditions, though, Britain’s prime minister, David Cameron, restated his view that British combat operations would be over by 2015 at the latest. “I think the British public deserve a deadline,” he declared.

In a sense, Mr Cameron has copied Canada, which announced some years ago that its combat troops would be out by next year. Yet Canada’s prime minister, Stephen Harper, has now made a commitment to provide 950 soldiers to train Afghan forces “behind the wire” in their barracks. Other countries have also stepped up their training contribution.

President Hamid Karzai of Afghanistan, who had complained in a newspaper interview about night-raids by special forces, saying they were aggravating the insurgency, declined the opportunity to make a fuss about the issue in public. “You are pulling my legs,” he told one journalist who asked him about his criticism of NATO tactics. Mr Obama acknowledged that Mr Karzai had been right to express concern about civilian casualties, but accepted that there would be disagreements in future.

In private, though, the dialogue was sterner. Angela Merkel, the German chancellor, and President Nicolas Sarkozy of France were among those who told the Afghan leader that he needed a more “coherent” message; he should not sound as if he disapproved of the presence of foreign forces. Western leaders also had domestic opinion to worry about, they told him.

Would Russia’s president Dmitry Medvedev, absent last year because of the row over the Georgia war, provide some fireworks for the weary hacks? No such luck. The Russian and western leaders alike spoke of turning a new page in relations. Mr Medvedev thought the occasion “historic”, though quite why was unclear.

He agreed to keep talking to NATO about the missile defence it agreed to create by linking up American ship-based systems with some shorter-range European air-defence rockets under development. But talking was not agreeing, he made clear. If Russia did not feel it was being treated as an equal, he warned, he would not co-operate and the two sides risked returning to an arms race.

It was the question of nuclear weapons, more specifically the new arms-reduction treaty between America and Russia, that provided a bit of passion. Mr Obama urged Republican leaders in the Senate to ratify the treaty, or risk the reversal of the “reset” policy that had eased tensions and convinced Russia to support fresh sanctions against Iran. Several eastern European leaders dutifully emerged to say they supported ratification of the treaty. Mr Medvedev said failure to ratify would make things "very unpleasant". Mr Obama even quoted Ronald Reagan and his dictum of “trust but verify”. Without the treaty, said Mr Obama, America would have no means of verifying Russian nukes.

As the convention centre was packed up, Mr Obama had one final summit: with the two “presidents” of the European Union, Manuel Barroso, president of the European Commission, the EU’s civil service, and Herman Van Rompuy, who represents EU leaders. Mr Obama had declined the offer to hold the summit earlier this year in Spain; now he agreed to a meeting tacked on at the end of the main event.

This was an even more dull affair than the NATO gathering. The leaders promised to work harder to promote jobs and growth. They agreed, among other things, to work to remove non-tariff barriers to transatlantic trade, to draw up common standards for future electric vehicles and to set up a working group on cyber-security.

Was it a waste of time? Mr Obama put it thus: “This summit was not as exciting as other summits because we basically agreed on everything.” What about the trade row between Boeing and Airbus? Or the dispute between Europe and America over currencies?  Such was the violent agreement that the leaders refused to take questions.

THE pretence is almost over. International financial inspectors will arrive in Dublin tomorrow to start examining the ruins of Ireland’s banks to decide how much can be rebuilt with foreign help and how much rubble needs to be cleared away.

The Irish government still insists that a European rescue is “not inevitable” and, in public at least, members of the euro zone are careful to say that they have not (yet) been asked for financial help. But everyone assumes that a bail-out of between €50 billion ($68 billion) to €100 billion is just days away, weeks at most.

Even Britain seems ready to help Ireland, whether on its own or through its contributions to the European Union’s budget. Brian Lenihan (pictured), Ireland’s finance minister, is ever more explicit about the need for Ireland to take the assistance aid. He told RTE:

Despite a large range of measures adopted by the government, Ireland is a small country, and if the banking problems in the country are too big for this small country to manage, Europe is making it clear that they will help and help in every possible way to secure the system because we are part of the euro system...and that's the framework within which we work.

Irish officials are signalling that the problem is, indeed, too big. So why not take the money now and end the damaging speculation on the markets? Part of the reason is political: can the Irish government, clinging to a thin majority and facing a by-election later this month, dress up the EU rescue as an operation to salvage the banks rather than the state?

It would be more palatable to pretend that the government's finances are somehow separate from those of the banks. The EU is willing to take part in this dance to some extent. Finance minsters of the euro zone announced [PDF] last night that they would send officials from the European Commission, the European Central Bank and the IMF for a “short and focused consultation” with the Irish government “to determine the best way to provide any necessary support to address market risks, especially as regard the banking sector”. The Commission says Ireland is a different case from Greece, or indeed from Portugal. It has been willing, on its own, to swallow heavy doses of austerity. And there is no doubt about the competitiveness of the Irish economy.

That said, there is a limit to the EU’s ability to sugar the medicine. It is hard enough to convince European taxpayers to bail out other governments; explaining why they should save other countries’ banks may prove even more unpopular. Christine Lagarde, the French finance minister, made clear that this would not be “a plan to save the banks”.

Apart from national pride, another reason for Irish reluctance to grasp the lifebuoy is the hope that, merely by being seen to make it ready, the EU might be able to calm down the panic. Publication of a four-year Irish budget may also reduce the buffeting. The financial inspectors may, perhaps, agree with Irish officials who insist that the damage to the banks, particularly their mortgage books, may not be as terrible as some fear. While this may not avert the need for a bail-out, it may delay it and reduce its scope. As a result, the conditions that might be attached to it might be more limited.

The Irish will fear, above all, a demand to increase their corporation tax rate, which, at 12.5%, is among the lowest in Europe. Officials from other countries complain of Ireland’s low taxes as a form of unfair competition, and speak with glee of Ireland’s “failed business model”. The Austrian finance minister, Josef Pröll, hinted at making aid for Ireland conditional on raising corporation tax.

For Ireland, though, low tax is a totemic issue, largely accepted from left to right. Irish officials argue that raising corporation taxes would be pointless at best, and probably counter-productive, because it would deter investment, drive big exporters out of the country and so lower tax revenues. The authors of this report reckon that even a small shift could have a “dramatic effect” on Ireland. Better, say officials, to widen the base of income tax.

All this makes for an odd kind of crisis. European leaders seem to care more about saving Ireland’s bankers than the Irish government does; and they seem much more upset than Irish voters about big business getting off with low taxes.

AT THE eleventh hour of the eleventh day of the eleventh month, many parts of Europe, and around the world, remember the fallen of past wars. But the way the past is commemorated, or ignored, often says something about the present. Some random observations on this Armistice Day:

Today is a public holiday in Belgium, so Brussels is quiet. But the European Union is at work; the long battle over the EU budget is likely to go late into the night. This is not evidence of a masochistic work ethic (the EU is not usually shy about taking holidays) but apparently a sign of deference to Germany, which does not formally mark the day of its defeat in 1918. Intriguingly, the war reparations that Germany had been made to pay under the Treaty of Versailles (and resentment of which spurred the rise of Hitler) have only just ended, with the last payment being made by Germany in September.

To many Germans the end of the war is associated with November 9^th, the day when Kaiser Wilhelm II abdicated. The day is regarded as a German “day of destiny” for several other reasons, both good and bad.  November 9^th was the night of Kristallnacht, the Nazi pogrom of 1938 that presaged the Holocaust of the Jews. And November 9^th was also the night the Berlin Wall came down, leading to the eventual downfall of the Communist bloc.

In Berlin two days ago to commemorate the date, the president of the European Council, Herman Van Rompuy, delivered a speech (here in PDF)about the enduring importance of the EU, and the need to preserve the single currency. He also issued a warning against the return of nationalism that, to many ears, will sound unduly shrill given the way he carelessly associated Euroscepticism with the danger of war.

We have together to fight the danger of a new Euro-scepticism. This is no longer the monopoly of a few countries. In every member-state, there are people who believe their country can survive alone in the globalised world. It is more than an illusion: it is a lie! Franklin Roosevelt said: “The only thing we have to fear is fear itself.” The biggest enemy of Europe today is fear. Fear leads to egoism, egoism leads to nationalism, and nationalism leads to war (“le nationalisme, c’est la guerre”) Today’s nationalism is often not a positive feeling of pride of one’s own identity, but a negative feeling of apprehension of the others.

As a reminder of the importance of Franco-German reconciliation in creating the foundation of the European Union, Le Figaro has a touching story of German soldiers in the Franco-German brigade, stationed in Strasbourg, taking part in the French Armistice Day commemorations.

At a ceremony in Paris, meanwhile, President Nicolas Sarkozy unveiled a plaque at the Arc de Triomphe to honour Parisian students who risked their life on Armistice Day in 1940 to demonstrate against Nazi occupation in the second world war. This illustrates the long tradition of French student activism and makes an interesting counterpoint to Mr Sarkozy’s criticism of the way modern-day high-school students have, more recently, taken to the streets to denounce his pension reforms.

More consciously, the French government used Armistice Day to issue another contemporary message. At Paris’s grand mosque, the defence minister, Hervé Morin, unveiled two plaques, one in French and the other in Arabic, to commemorate roughly 100,000 Muslim soldiers who died for France. The mosque was built, at the request of French officers, in homage to Muslim soldiers who fell in the first world war. Who says Islam has no place in Europe?

A reconciliation of a different sort, a reconciliation at home, is taking place in Ireland, where the first world war was the moment for Irish republicans to rebel against British rule. In what would become the Republic of Ireland, the Easter Uprising of 1916 is remembered by all (“A terrible beauty is born”, wrote W.B. Yeats), while the deaths of many Irish soldiers serving with British forces were more or less ignored. That attitude has been changing, as illustrated by this memorial in Dublin to soldiers who died serving in the British army. The Irish Times also has a story of a different sort of resistance to occupation: Irish citizens who operated in occupied France on behalf of the Allies.

Finally in Britain, where red poppies are widely worn to remember the war dead, a columnist notes that commemoration of the fallen is a comparatively recent phenomenon in the long history of British warfare. At the going down of the sun and in the morning, we will remember them in our own way.

THE summit-within-a-summit by centre-right leaders of the European People’s Party (EPP) at Bouchout castle, in Belgium’s national botanical gardens outside Brussels, had two notable absences. One was the German chancellor, Angela Merkel, detained in Berlin by parliamentary business. Her spirit nevertheless dominated proceedings. The other was David Cameron, the British prime minister, whose Conservative party left the EPP in 2009 to form an anti-federalist European faction.

 So while Nicolas Sarkozy of France hobnobbed with the likes of Luxembourg’s Jean-Claude Juncker, Poland’s Donald Tusk, Sweden's Fredrik Reinfeldt and Belgium's Yves Laterme, who did Mr Cameron schmooze with? Nobody, really. He worked the phone on the Eurostar train from London, and briefly met Mrs Merkel and Mr Sarkozy before walking into the summit.

Splendid isolation from Europe’s mainstream centre-right family, and from the burning debate over whether to change the treaties to strengthen fiscal disciplione in the euro zone, has worked well so far for the British prime minister. He has avoided a bust-up over European policy - with European leaders, with his Liberal-Democrat coalition partners and with the Eurosceptic wing of his party.

But even if Mr Cameron is not interested in Europe, Europe may be interested in him. To begin with, Eurosceptics are interested in the idea that re-opening the treaty gives Mr Cameron an opportunity to repatriate powers from Brussels to Westminster. And EU institutions are interested in more of Britain’s (and everybody else’s) scarce money. The European Parliament has supported the European Commission’s proposal for a 5.9% budget increase for EU bodies next year. Member-states had voted in July for a 2.9% rise, after Britain and several allies lost a vote for a cash freeze. A “trilogue” between the commission, parliament and council of ministers has started to find an agreement.

Enter Mr Cameron, fresh from announcing the most severe budget cuts in Britain since the end of the second world war. The EU budget was not on the summit's agenda. Earlier in the week, though, Mr Cameron had rashly pledged to fight once again for a freeze or a budget cut. The British press expected another one of those handbag-swinging summits that Margaret Thatcher had been famous for. As Mr Cameron arrived in Brussels, though, a partial retreat was in the offing: the target of his attack shifted from demanding a freeze to denouncing parliament’s support for the 6% rise.

His impassioned criticism of the EU's spendthrift ways at a time of austerity won support from several fellow leaders in the meeting room. As told by British officials, Jerzy Buzek, president of the parliament, argued that rejecting the 6% rise would make Mr Cameron “anti-European”. To which the prime minister replied: “I have had to cut the police force; that does not mean I am anti-police.” And Mrs Merkel chipped in: “I’m cutting the German budget. I’m not anti-German.”

Such words will have heartened Mr Cameron. By evening, British officials were circulating a letter signed by several countries declaring that they “cannot accept any more” than a 2.9% increase. Mr Cameron’s officials touted it as an important British success. In reality, though, the budget battle was a sideshow. Mr Cameron's letter was signed by just 11 out of 27 members (including, it must be said, France and Germany), who agreed to what they had already agreed three months ago. If only Mr Cameron had been at Bouchout castle.