Charlemagne's notebook

“SELL your islands, you bankrupt Greeks - and the Acropolis too!” Such was the furious headline of Bild, Germany’s leading tabloid, when the dire state of Greece’s finances was first revealed. At the time this sounded like a bit of crass populism. But one year on, it has pretty much become the message of Europe’s finance ministers.

At the end of a late-night meeting in Brussels, ministers from the countries that use the euro delivered a harsh message that Greece had to push through more reforms before it could hope for more relief from its partners, be it an additional bail-out programme or a rescheduling – or “reprofiling” - of its debt mountain.

“Urgent measures are needed in Greece in order to reach its fiscal targets,” said Jean-Claude Juncker, the prime minister of Luxembourg and chairman of the meeting. He said Greece had to “increase the volume of privatisation” as well as adopt further belt-tightening measures to meet its deficit-reduction target this year.

Christine Lagarde, the French finance minister, said Greece had so far failed to act on its original promise to raise €17 billion from the sale of state assets. This figure was raised earlier this year to €50 billion. She said it was important for Greece to take a leaf out of the book of Portugal (its bail-out was approved today), where both government and opposition parties have pledged to support the reform programme negotiated with the European Commission, the European Central Bank (ECB) and the International Monetary Fund.

The Netherlands said it had won some support for a more radical measure: creating an external agency run by the EU to take charge of selling the assets. That is an erosion of sovereignty that is likely to run into fierce resistance, and not just from Greece.

A growing number of economists believe Greece’s debt, already at about 150% of GDP, cannot be repaid. Some advocate “hard” restructuring, in other words imposing losses on creditors. Germany has been pushing a softer rescheduling of the debt to delay repayments, or “reprofiling”.

But Mr Juncker said: “It is not reprofiling or nothing. It is (reform) measures and measures and measures, and then maybe reprofiling.”

But even after hours of talks, the ministers struggled to keep a consistent line. Ms Lagarde insisted that both restructuring and rescheduling were “off the table”.

George Papaconstantinou, the Greek finance minister (pictured above, talking to Ms Lagarde), backed this version of events. And he insisted that ministers had not been as harsh as may seem: they acknowledged the unprecedented reduction of Greece's budget deficit, worth 7% of GDP. “At the same time they acknowledged that we need to do more. We concur.”

The meeting unanimously endorsed the appointment of Italy’s central banker, Mario Draghi, to succeed Jean-Claude Trichet as president of the ECB later this year.

Asked whether the absence of Dominique Strauss-Kahn, the IMF’s boss remanded in jail in New York on charges of sexual assault, Mr Juncker said he had been “close to tears” at the sight of his friend in handcuffs. He refused to be drawn on whether another European should replace him. Ms Lagarde, for her part, said she did not want to discuss speculation that she might be a candidate for the top IMF job.

In short, the ministers seemed to agree on little – except that the Greeks had to start selling, selling, selling.

IT WAS a year ago that the European Union produced its big bazooka to quell the euro area’s sovereign-debt crisis: a €750 billion fund to safeguard the single currency, following within days of the €110 billion bail-out of Greece. It did not work. Ireland has since been bailed out, and a rescue of Portugal is in the works. Greece looks closer than ever to defaulting, or at least to having its debt restructured.

After a year of muddling along, the EU seems more muddled than ever. The disarray was painfully apparent over the weekend. News of a secret meeting of selected European finance ministers (including Greece's man, George Papaconstantinou, pictured above) in Luxembourg on May 6th was promptly leaked.  Der Spiegel reported that Greece was considering leaving the euro zone; the briefing note for the German finance minister, Wolfgang Schäuble, made clear this would be economic suicide. It would greatly expand (perhaps double) Greece’s debt burden, provoke capital flight, cause turmoil across Europe’s banks and endanger the country’s membership of the EU. Greece described the report as "borderline criminal".

Indeed, the idea of Greece giving up the euro has now generally been accepted as nonsense, but not before another upheaval in the markets (Greece was downgraded again by Standard & Poor's yesterday). The notion of Greece leaving the EU was “stupid”, declared Jean-Claude Juncker, the prime minister of Luxembourg (who presides over the euro area’s group of finance ministers), after hosting the meeting that his officials denied was taking place. Mr Juncker is, after all, the man who argued against transparency in decision-making, saying he was all for "secret, dark debates". He may think this is a sign of seriousness in economic policy, but this weekend he came across as incompetent.

It is possible that the meeting caused such confusion that the ministers felt compelled to rule out one option that  is being discussed more and more openly: restructuring Greek debt because of the country's inability to repay its loans, or even to balance its books, as austerity measures worsen the country’s recession.

So for now, it is the EU’s rescue plan that is being restructured. “We think that Greece does need a further adjustment programme”, said Mr Juncker. The details will be worked out at a meeting of finance ministers next week. The country is in no state to start tapping back into markets next year, as envisaged in its current bail-out plan. So European countries are likely to extend more assistance to Greece.

The options include giving it more time to meet its deficit-reduction targets (its budget deficit was 10.5% of GDP last year, a long way off its 8.1% goal), softening the terms for its current bail-out (by again reducing the interest rate or again stretching out its repayment schedule), issuing new loans, or having the EU buy new Greek bond issues in future. Mr Papaconstantinou suggested this last option was under active discussion. Ireland hopes it, too, will benefit from the rethink on Greece.

Plainly, the crisis requires fresh thinking. But so far the EU remains doggedly on its year-old path. First, do what is necessary, but no more than that, to avert a financial collapse in euro-area member states. And second, play for time in the hope that troubled economies will start to grow out of their difficulties, or at least until Europe’s banking sector strengthens sufficiently to cope with the losses on restructured government debt. Above all, push the problem beyond the political horizon of the euro area's main leaders: the 2012 presidential election in France, and the 2013 parliamentary election in Germany.

Forget the bazooka. Pass the pea-shooter.

FOR THE past year excessive sovereign debt has endangered the European project. For the coming year it may be north African boat people who present the greatest danger to European unity.

The turmoil over illegal migrants is a consequence of the Arab pro-democracy awakening on the far side of the Mediterranean and, perhaps, of the Western military intervention in Libya. According to UNHCR, more than 20,000 boat people have landed on the Italian island of Lampedusa this year, almost all of them from Tunisia. More than 800 have arrived in Malta, mostly from Libya.

At today's meeting of the European Union's interior ministers in Luxembourg, Italy and Malta called on the EU to activate a 2001 directive to grant temporary protection to migrants in cases of “mass influx” and to share the burden of absorbing the newcomers. But ministers flatly turned down the proposal. The European Commission described the call as “premature”, but said the EU was offering “solidarity” in other ways, including money and additional surveillance teams provided by the EU's Frontex border agency.

Malta would be helped on a voluntary basis in resettling boat people, given its small size and the fact that most of its newcomers are people fleeing war in Libya. Italy is confronted by a bigger wave, but its boat people are mainly economic migrants rather than refugees who have taken to the sea because of the economic crisis in Tunisia after its pro-democracy revolution, and because border controls have become laxer after the downfall of President Zine el-Abidine Ben Ali.

In any case, say fellow ministers, the flow of migrants to Italy is nothing like the influx of refugees into Europe (mainly Germany) during the Balkan wars, in response to which the EU directive was adopted.

Nonetheless, Roberto Maroni, the Italian interior minister, complained bitterly that the EU had abandoned Italy (video here, in Italian). “I ask myself if it makes sense to continue in this position: of continuing to be part of the European Union, an institution that is activated immediately to save banks, to declare war—but when it is a matter of expressing solidarity with a country in difficulty, such as Italy, it hides.”

He said that his country had been told: “Dear Italy. It's your business. Manage it on your own.” If this is the attitude of the EU, he declared, “we are better off alone than in bad company.”

Such comments are not entirely unexpected from a leading member of the anti-immigrant and Eurosceptic Northern League, except that Silvio Berlusconi, the Italian prime minister, had offered similar sentiments a day earlier during a visit to Lampedusa: “Either Europe is something concrete, or it would be best to part ways”.

Nobody expects Italy, a founding member of the EU, to begin proceedings to withdraw. Its lashing out at outside foes may be a sign of a political system that is in fibrillation because of the multiple legal cases against Mr Berlusconi (he was in court today, denouncing "leftist" magistrates). Yet the anti-Europe mood has been harsh enough to alarm President Giorgio Napolitano (report here, in Italian).

Italy is resorting to a ruse that other countries suspect is a blatant attempt to export its problem: granting all arrivals from Tunisia temporary protection in Italy. In theory this would allow them to travel freely throughout the passport-free Schengen area, and most can be expected to take the opportunity to slip across the Alps to other countries, above all to France.

Over the weekend, the Italian finance minister, Giulio Tremonti, seemed to issue a veiled warning: “A cheque that needs to be honoured has arrived in Italy, but it will not stop in Lampedusa. It will arrive in Germany, in the north and all over Europe.”

French authorities have already stepped up identity checks in areas near the border with Italy. Claude Guéant, the French interior minister, said about 2,800 Tunisians had been caught so far in the past month, of whom about 1,700 have been expelled back to Italy. He and Mr Maroni met last week to smoothe over their row over the handling of migrants, agreeing to conduct more joint patrols in the Mediterranean.

But Mr Guéant would not yield on the substance of the disagreement. Italy had a right to issue temporary permits, he said; France had a right to check whether Tunisians arriving from Italy had a proper passport as well as funds to support themselves, as stipulated under Schengen rules. Every country in Schengen had to bear its responsibilities, he said. Italy was not the only country with a migration problem: France had to contend with thousands of illegal Afghan and Pakistani migrants who congregate around Calais to try to slip across the Channel to Britain.

Others have been more openly critical of Italy. “I was quite dissatisfied with Italy's surprise decision to pass on its problems to all the others without prior notice,” said Gerd Leers, the Dutch minister for immigration and asylum. Austria's interior minister, Maria Fekter, said her country would investigate means of stopping migrants from crossing its borders. Similarly, the German states of Bavaria and Hesse said they might introduce border checks.

Migration is likely to be a contentious issue at June's European summit (see this paper by the Centre for European Reform). With anti-immigrant parties on the rise across Europe, the dispute has great potential to degenerate.

Like the euro, which requires mutual trust among members about their readiness to preserve sound public finances, the Schengen area relies on mutual trust about the capacity of members to control their borders and migration flows. But Italy threatens all that: rather than acting as a dam and reservoir for migrants, it would rather be a weir, allowing the human flow to pass over it.

In the euro crisis, creditors and debtors alike wondered whether they would be better off without the other. Now it is the countries of the Schengen borderless travel area that are starting to question another of Europe's great integration projects.

WHAT a difference a year of crisis can make. When Greece was in trouble this time last year, the European Union wavered for months about whether and how to bail it out. Now with Portugal the resistance has been on the other side. José Sócrates, the Socialist prime minister, tried to avoid asking for rescue until the last possible moment before going under. The European Commission, on the other hand, said his request would be processed “in the swiftest possible manner.”

Some European finance ministers expressed relief. Germany's Wolfgang Schäuble called the move a “sensible and necessary step”. Others criticised Portugal for unnecessary delay. "They should have requested aid much earlier. They have placed themselves and Europe in a very difficult situation,” grumbled Sweden's Anders Borg.

One minister who will not be pleased is Finland's Jirki Katainen, leader of the centre-right National Coalition party, who hopes to become the next prime minister following this month's general election. Anti-EU sentiment in Finland has been fanned by the crisis and repeated bail-outs, boosting the far-right True Finns party.

The EU will insist that Portugal submit to a tough adjustment programme, perhaps tougher than the austerity measures that the EU approved but the Portuguese parliament rejected last month, bringing down Mr Sócrates's minority government.

The matter will be discussed at the informal meeting of finance ministers outside Budapest tonight and tomorrow. They may order a mission by experts to negotiate the terms of any rescue, which would them have to be approved by them.

This third bail-out, after that of Greece and Ireland, has caused little surprise. But a political cloud hangs over the negotiations. Does Mr Sócrates's minority government have the authority to negotiate the adjustment measures with the EU and the IMF (detested by many in Portugal after the adjustment programmes it endured in the 1970s and 1980s) before elections in June? And if he is replaced, will his successor come back to Brussels demanding to renegotiate the deal, as Enda Kenny, the new Irish prime minister, has attempted to do?

For now, the commission is sticking to a rather formal line that it will negotiate with the authorities of the day. But it points out that the main centre-right opposition party (called the Social Democrats) supports the request for a bail-out. Nevertheless, the question is whether, in the heat of an electoral campaign in which each will try to blame the other for the country's woes, either Mr Sócrates or his opponent, Pedro Passos Coelho, will be able to agree on precisely how the squeeze should be applied.

Another politician who has a stake in events in Portugal: the president of the European Commission, José Manuel Barroso, a former Portuguese prime minister. His relations with Angela Merkel, the German chancellor, have been testy. She did not appreciate his public pressure for a bail-out duiring the Greek crisis. More recently she has suspected him of being too soft on Portugal. It is not just governments and Brussels-watchers who will be scrutinising Mr Barroso. Now that his native country is in an election campaign, Portugal's political class will inevitably wonder whether his actions somehow favour Mr Sócrates or Mr Coelho (Mr Barroso's political stable-mate).

Long before Portuguese voters pass judgement on all this, the most closely watched verdict will be that of the bond markets. Investors seem to be pleased that the economic uncertainty is ending. But will they get twitchy if the negotiations with Portugal drag on? Will they test the robustness of Spanish government debt? The mood in the euro zone's most troubled economies will not be improved by the European Central Bank's decision earlier today to raise interest rates by 25 basis points. Aware of the criticism, the ECB president, Jean-Claude Trichet, said the rise was not necessarily “the first in a series of interest rate increases”. In other words, the trouble in Portugal and elsewhere may stay his hand for a while.

WHAT an odd way to run a war. Nearly a week into the allied air operations in Libya, the command structure remains murky. True, the coalition headed by America, France and Britain had to act in haste, and has had to build a command structure on the fly.

So after much intense diplomacy, NATO has agreed to take over the running of the no-fly zone over Libya. Yet the coalition will remain in charge of operations to attack Libyan forces on the ground. “At this moment, there will still be a coalition operation and a NATO operation,” said Anders Fogh Rasmussen, the NATO secretary-general.

This hybrid arrangement may be necessary to hold together those who are more muscular in terms of attacking Libyan forces on the ground, and those who want to stick to patrolling the airspace and waters. But it could prove awkward over time. It is reminiscent of the unhappy command-and-control arrangement that lasted for years in Afghanistan, whereby the NATO-led ISAF mission was responsible for peacekeeping and stabilisation while, alongside it, an American-led coalition ran the counter-terrorist mission, known as Operation Enduring Freedom (OEF).

This was often an uncomfortable arrangement, causing much resentment, as special forces would sometimes hit targets without informing NATO commanders supposedly in charge of a particular area of operations. European commanders complained privately about gung-ho Americans while Americans seethed about spineless Europeans. Eventually the matter was resolved. America boosted its forces and took overall command of ISAF, bringing OEF under a single commander.

The situation may not be as bad in Libya; NATO and the current coalition may be a distinction without a difference. The NATO commander who will be in charge of the no-fly zone, Admiral Samuel Locklear, is the same naval officer who, with an American hat, is already running the coalition’s Operation Odyssey Dawn. Moreover, the British say they expect all aspects of the operation to come under NATO command in the coming days.

The debate about the degree to which NATO controls the operation is odd. For the Americans, bringing NATO in means handing over responsibility to Europeans; for Europeans, NATO means America. France has resisted giving NATO too prominent a role for fear that it will turn off Arab allies; Italy says the NATO label would be an attraction because it would put a straitjacket on the gung-ho French.

While military commanders are accustomed to operating with different NATO and national hats, the politics may not be resolved until one of two things happens: either the coalition stops hitting ground targets to make the operation more palatable to Turkey, or Turkey accepts that bombing tanks and artillery firing on Libyan towns is, in fact, a necessary part of protecting civilians.

This leads back to the uncomfortable questions that have dogged the intervention: what are the aims and limits of the operation? And how long will it go on for? Speaking at a summit of European leaders in Brussels, President Nicolas Sarkozy of France said last night the coalition had stopped a repetition of the Srebrenica massacre in 1995. That alone justifies taking action, but it does not answer how the operation will end.

As matters stand, the coalition has resorted to enough force to stop Colonel Qaddafi from crushing the revolt, but not yet enough to remove him from power. At this intensity, the intervention may well lead to a frozen conflict: think of Iraq under sanctions, no-fly zones and occasional air strikes for 12 years. The trouble with such a prospect is that Colonel Qaddafi could simply outlast the coalition’s will to continue policing Libya; as with Iraq, sanctions have a tendency over time to weaken those imposing them.

Kurt Volker, a former American ambassador to NATO, offers a maximalist interpretation of the UN resolution authorising the use of force to protect Libyan civilians. “The sooner the West adopts a clear position that the UN’s humanitarian goals can only be achieved by Qaddafi’s removal from power, the sooner the crisis can begin to come to an end.”

Nobody is yet prepared to adopt such a position. Indeed, President Sarkozy last night offered a more limited set of objectives. The video of his press conference is here. To sum up, he said the coalition’s job was to protect civilians from the threat of attack. Removing Colonel Qaddafi was a job for Libyans themselves. His condition for ending the attacks was for Libyan forces to withdraw to barracks and to stop besieging Libyan towns, not the departure of the colonel.

He offered a reason for sticking to a fairly narrow interpretation of the resolution: the need to maintain Arab support. As well as a couple of Qatari planes, the UAE has now confirmed it will send 12 jets to help out. Their rules of engagement are unclear. But all this is precious help, politically if not militarily.

In one of his more thoughtful moments, Mr Sarkozy said the prize was not just the fate of the Libyan people, but winning back the trust of Arab people as they seek to free themselves of autocratic rulers. He told Syria and Yemen, among others, that he will maintain the same position: Europeans would stand on the side of peaceful demonstrators against those who fire on their own people.

One can argue that Mr Sarkozy’s formulation does not resolve the underlying worries about a stalemate. If Colonel Qaddafi really stopped resorting to force he would be finished anyway. So one should not expect him to stop entirely, though he might change tactics—for example putting his forces inside towns rather than around them to make it harder to hit them without causing civilian casualties. The French high command is already giving notice that operations could go on for weeks rather than days. It may be much longer.

One hope is that the regime will break up internally. Hillary Clinton has spoken of senior regime figures putting out feelers about possible exile, and Mr Sarkozy publicly encouraged defections, saying those who dissociated themselves from Colonel Qaddafi would have a place in a future Libya. David Cameron, the British prime minister, warned regime loyalists that every day they continued to support Colonel Qaddafi would bring them closer to prosecution for war crimes in the Internatiional Criminal Court. He told them:

Don't obey his orders. Walk away from your tanks. Leave the command-and-control that you are doing. Give up on this regime because it should be over for him and his henchmen.

But given the experience of Iraq, it is hard to put much faith in this outcome; Saddam was only removed by a full-blown invasion.

Can one increase pressure on the colonel to hasten his demise? French officials are speaking of creating large zones of humanitarian protections, defended by the United Nations. Another is to move beyond merely protecting Mr Qaddafi’s opponents to strengthening them: beginning with humanitarian aid, and perhaps increasing the rebels' political profile (France would like the oppostion "national council" in Benghazi to be represented at next week’s conference on Libya in London). Should one train and arm them too? “It is a good question,” says one senior French source, nodding his head.

One problem with this strategy is that there is currently an arms embargo on Libya. A new UN resolution would be needed, and one could expect intense resistance to the notion of the world arming one side of a civil war. The danger is of arming the wrong sort of people—the opposition national council includes prominent former members of Colonel Qaddafi’s regime. Another risk is of a future “blowback” of the sort that took place in Afghanistan, where some of the anti-Soviet Arab fighters that were supported by the West and Saudi Arabia in the 1980s went on to become the core of al-Qaeda.

Mr Sarkozy said the decision to take action in Libya was hard to take. Deciding how to end it may prove even more difficult.

IT WAS supposed to the European summit when the crisis of the euro would finally be resolved with a comprehensive set of responses. The economic-governance reforms were supposed to be a “game changer”, in the view of José Manuel Barroso, president of the European Commission. It was not to be. The game has been postponed to June.

The reason? Democratic politics at the farthest ends of Europe: Finland and Portugal. The two countries, whose prime ministers are pictured, embody the split in the euro zone: north and south, snow and sun, fast-growing and sluggish, tight public finances versus yawning deficits. The crisis is weakening both creditor and debtor nations, and the political crise mean the European Union has stumbled yet again just when it thought it was reaching the finishing line.

Start with Portugal. For months now, it has been the next candidate for an EU bailout, after Greece and Ireland.  But its minority Socialist government, led by José Sócrates, has vowed not to seek external help. Portugal's experience of IMF programmes in the late 1970s and early 1980s has been seared in its politics. The IMF is even subject of a famous song by José Mario Branco (FMI). Rather than subject Portugal to such humiliation again, Mr Socrates has pushed through one austerity package after another.

His latest one, though, failed to get support in parliament and Mr Sócrates has handed in his resignation. Elections are likely in May or June. With bond markets driving up the yield on Portuguese government debt, the crisis may well hasten the moment when Portugal has to ask for help. If so, the electoral contest may be decided by who gets pinned with the blame. Will Mr Sócrates be deemed guilty of failing to reform Portugal’s sclerotic economy? Or will Pedro Passos Coelho, leader of the main centre-right opposition (confusingly called the Social Democrats, PSD), take the rap for bringing down the government, rattling the markets and delaying reforms?

The Portuguese crisis is hardly welcome news at the summit. Not for the first time, the EU’s slow-moving decision process has been overtaken by events. But senior officials and diplomats claim to see a silver lining: the Social Democrats agree with the government’s overall fiscal targets, but disagree with the methods Mr Sócrates has chosen. And if the election means that Portugal gets a government with a clear majority and a mandate to carry out reforms, that may be better for Portugal, and for the euro, in the longer term.

That said, the crisis in Portugal highlights the fact that the “comprehensive” bargain to address the sovereign-debt crisis is still incomplete. The EU’s existing rescue funds may have enough money to rescue Portugal. But can they help Spain if, as many expect, it is next to be infected? Probably not.

That is why a central part of the package deal is to increase the lending capacity of the EU bailout funds to ensure they can give out the full headline amount of €500 billion. The main fund, the European Financia Stability Facility (EFSF), can only lend about  €250 billion of its headline figure of €440 billion.

Boosting the fund required, first of all, agreement on the shape of the permanent fund that will come into being in 2013. This was supposed to have been settled by finance ministers earlier this week, but Angela Merkel, the German chancellor, re-opened the issue because  she wanted a longer period for countries to pay in the capital (not least to avoid too large a payment in 2013, the year of German parliamentary elections). That now seems to have been agreed.

Boosting the current “temporary” EFSF has also been agreed in principle, except that the final accord has been pushed back to June. That is because of political problems in Finland.

The government in Helsinki is refusing to sign up to any increase in the lending capacity of the EFSF until after its election next month. In part this is a constitutional issue, as parliament would have to be recalled for an emergency session to endorse any increase in Finland’s contribution, be it in terms of cash or guarantees. In part the reluctance is also a bit of electioneering. The centre-right National Coalition party, led by Jyrki Katainen, Finland’s finance minister, is expected to win the largest number of votes. But he is acutely sensitive to the strong challenge posed by the True Finns, a populist anti-immigrant and anti-EU party that has surged in the polls - in large part because of popular resentment at Finland having to contribute to the bail-outs of Greece and Ireland.

Asking Finland to reach again for its credit card before the election would only boost the True Finns, as would have to bail out Portugal. So in both Portugal and Finland, political leaders are hoping that Portugal does not have to ask for money any time soon.

SEVERAL times, in recent weeks, I have found myself writing about Italy and Silvio Berlusconi. Better change the subject, I thought. And what better way to get away from Il Cavaliere than to retreat to the snow-blanketed north of Europe?

But no sooner had I arrived in Helsinki than I was confronted by Mr Berlusconi again. There he was, in a photomontage of “Don Silvio” as The Godfather. The picture was being held aloft by a group of protesters outside the Kamp hotel, venue of a summit of centre-right European leaders (see my earlier post).  “Mafioso! Mafioso! Mafioso!” they shouted. Some wore pig-face masks. Others held up a banner: “Keep Finland Clean. Leave”

The demonstrators were a few score Italians living in Finland who had organised on Facebook - one said he had come from 400km away - to denounce Mr Berlusconi’s attendance at the summit. They certainly outnumbered the Finnish nationalists denouncing the prospect of an impending round of European integration (and perhaps of another possible bail-out, this time for Portugal). The Italians were louder too, so much so that the Finns seemed to give up and joined in shouting anti-Berlusconi slogans.

Maurizio, a 24-year-old IT specialist, said: “We are sick and tired of being made fun of by this idiot. We have come here to work. We try to beat the stereotype about Italians. We are honest citizens. But the way Berlusconi is carrying on only strengthens the stereotype. Every day he does something that worsens Italy’s terrible image abroad.” The Italian diaspora had once been a source of electoral support for Mr Berlusconi. On the evidence from Helsinki, that constituency is evaporating.

Finns, too, have reason to dislike Mr Berlusconi. Their beef, or perhaps better said their "venison", is his insulting attitude about Finnish food. In 2001, during the campaign to stop the European Food Safety Authority from being established in Helsinki, he described Finns as ignorant about food. In 2005, when the agency was finally set up in the Italian city of Parma, he quipped that he had succeeded by using his "playboy" charms on the country's president, Tarja Halonen. He complained about having had to "endure" Finnish food.  “There is absolutely no comparison between culatello (a kind of ham) from Parma and smoked reindeer,” he quipped. In response to the outrage, a Finnish pizza chain invented a “Pizza Berlusconi” with smoked reindeer.

Over dinner at the summit, Mr Berlusconi was treated to a meal of venison. As he emerged from the summit, amid questions about the political upheavals at home and his impending trial on allegations of having sex with an underage prostitute, Mr Berlusconi was gracious: “The filet of venison was extraordinary,” he said, “I even asked for a second helping.”

IN GERMANY, Karl-Theodor zu Guttenberg, the defence minister and rising political star, regarded as a possible future chancellor, has just resigned for plagiarising his doctoral thesis. “I must agree with my enemies who say that I was not appointed minister for self-defence, but defence minister,” he declared today.

In France Michèle Alliot-Marie, the foreign minister, was prised out of her job at the weekend for her Tunisian gaffes, among them accepting private plane rides from an associate of the now-ousted president, Zine al-Abidine Ben Ali.

In Tunisia itself, the caretaker prime minister, Mohamed Ghannouchi, first appointed by Mr Ben Ali, stepped down on Sunday after another round of street protests.

But in Italy, Silvio Berlusconi, Italy’s prime minister, goes on and on. He faces three separate trials in the coming weeks, including for tax fraud and paying for sex with a minor. Hundreds of thousands have taken to the streets to demand his resignation. He has even kissed the hand of Muammar Gaddafi.

With the approach of Italy’s 150^th anniversary (and, by the way, the centenary of Italy’s occupation of Libya) I struggle to come up with a good explanation for this Italian exception. Any thoughts from readers on why Baron Cut-and-Paste is compelled to leave while Il Cavaliere manages to remain in the saddle?

"WE MUST not allow Libya to become another Afghanistan just next door to us,” declared Italy’s interior minister, Roberto Maroni, at the end of a European ministerial meeting in Brussels yesterday (February 25th).

From indifference to the crisis in Libya - early on Silvio Berlusconi said he had not called his friend Colonel Muammar Qaddafi because he did not want to “disturb” him - Italy has shifted to shrill alarm. It fears the prospect of Libya breaking up, the threat of a radical Islamic state taking root across the Mediterranean and, above all, the threat of a biblical exodus of refugees and migrants. In short, Italy is worried about everything except the really important consideration: the fate of Libyans themselves as Colonel Qaddafi murderously clings to his shrinking “state of the masses”.

Such short-sightedness would be distasteful from any European state. But it is particularly disturbing coming from the country that had once colonised Libya as its “fourth shore”, cruelly putting down resistance. “Lion of the Desert”, the movie re-enacting those turbulent years, featuring Anthony Quinn and Oliver Reed, was officially banned in Italy for years.

Resentment over the colonial era has been a thorn in relations between Italy and Libya. It was formally settled with the signing in 2008 of a treaty on “friendship, partnership and co-operation”. Mr Berlusconi apologised for the ills of Italian colonialism and agreed that Italy would make $5 billion worth of investments in Libya over 20 years.

Italy also made a controversial deal allowing its navy to push boats carrying illegal migrants and asylum-seekers back to Libyan shores. Clandestine migration to Italy was largely shut down, only to be diverted to Greece, via Turkey (see my column).

The Italian government worries that, with Colonel Qaddafi’s loss of control, and perhaps ultimately loss of power, the boat-people will take to the sea once more. It had its first scare earlier this month, with the sudden arrival of about 6,000 Tunisian migrants on the island of Lampedusa. Mr Maroni says he is making plans to receive hundreds of thousands of people – whether Libyans fleeing the fighting, or migrants from further afield exploiting the opening provided by the collapse of Libyan authority. “I consider that there is zero control on Libya’s coast,” declared Mr Maroni, “Why has migration not yet resumed? Because the machine run by criminal networks has not yet started.”

Under current EU rules, asylum-seekers and migrants (the two are too often confused) must be sifted and processed in the country of first entry, which is then responsible for looking after those granted refugee status and for repatriating those who are not deemed to be in need of protection. Italy says this is unfair on “frontline” states in the Mediterranean. These rules, said Mr Maroni, were suitable for normal times but were inadequate to deal with a looming “humanitarian emergency”.

Earlier in the week Italy banded together with five other EU Mediterranean states to demand greater European “solidarity” – not just in terms of money but, more importantly, in terms of parcelling refugees across Europe. This has happened, on a voluntary basis, when Malta was swamped with boat people. This Club Med group, it seems, wants “relocation” to become more institutionalised.

Germany, France, Britain and several others rejected the call. "Share out refugees more equitably? Great idea," says one German official sarcastically, "Italy can take some of our refugees." Others may well nod their heads. According to UNHCR's figures (zipped .xls file), at the end of 2009 Germany had a refugee population of 594,000, the UK 269,000 and France 196,000. Italy, the last of the “big four” EU states, had a refugee population of 55,000, lower than that of Sweden which, even though it has just one-sixth of Italy’s population, shelters 81,000 refugees. In any case, notes UNHCR, most of the world’s refugees live in developing countries like Pakistan and Iran.

Mr Maroni’s campaign for EU solidarity smacks of hypocrisy. For now, the biggest escape routes from Libya are across the land borders to its neighbours, Tunisia and Egypt. These states are doubly deserving of European “solidarity”, having just cast off their dictators and now welcoming those fleeing from Libya.

And those who most need help are the Libyans themselves. Italy should be at the forefront of international action against Colonel Qaddafi. Yet Italy has hampered a forceful European response (see my column this week) and, though Mr Berlusconi has changed his tune of late, is most resistant to sanctions. Indeed, the rumour in Brussels is that Italy is making its support for EU sanctions against Libya conditional on guarantees of EU “solidarity” on migrants, a claim that President Giorgio Napolitano has denied (Italian).

Italy’s reticence about sanctions, and its public alarm about refugees, raises suspicions about its motives. Is Italy protecting its oil interests? Do Italian politicians fear their dirty deals with Libya will be exposed? Is Mr Maroni’s anti-immigrant Northern League trying to stir fear of foreigners for domestic advantage? Is Mr Berlusconi trying to divert attention from his legal problems and allegations of sex with underage prostitutes?

The most charitable interpretation is that Italy is genuinely in a panic, and cannot think straight. Its fears are not unfounded. But precisely because they are real, it needs to think about how best to avert the most dire scenarios. A sober assessment of Italy’s national interests would conclude that Colonel Qaddafi must be prised out of power as quickly as possible. It took the French defence minister, Alain Juppé , to say so clearly: “I hope wholeheartedly Gaddafi is living his last moments as leader.”

This is not to say that, a hundred years after Italian troops invaded Libya, there should necessarily be a direct military intervention. But bringing humanitarian supplies to Libya’s liberated areas and to refugees in neighbouring countries seems overdue. Imposing a no-fly zone makes sense too. It only takes a glance at the map to see that Italy is best placed to help on both counts.

The departure of Colonel Qaddafi is not just for the best of Libyan people, but it would also be the best means of allaying Italy’s fears. Prolonging the conflict would only increase the risk of splitting Libya, of radicalising its population, of stirring its peoples’ resentment at Western countries’ collusion with Colonel Qaddafi and of pushing them out to the sea to seek shelter. In short, getting rid of the quixotic colonel is the best way of stopping Libya from becoming another Afghanistan.

IT IS only a paragraph long, but the leaders of the European Union fought over it for hours. The words in the conclusions (PDF) of the European summit on February 4th  hide the deep cracks that have been re-opened within the EU over how to restore the euro zone after the year-long sovereign-debt crisis:

Building on the new economic governance framework, heads of state or government will take further steps to achieve a new quality of economic policy coordination in the euro area to improve competitiveness, thereby leading to a higher degree of convergence, without undermining the single market. Non-euro members will be invited to participate in the coordination.

This is a long-winded reference to the “competitiveness pact” that France and Germany had wanted to unveil at the summit. The idea is for leaders of the euro zone to agree to co-ordinate and align their economic policies more deeply in sensitive areas like wages, pensions and taxation. The declared aim is to encourage "convergence" to reduce the economic imbalances that contributed to the sovereign-debt crisis. But it could also have a deep political impact, in terms of splitting the euro zone from the rest of the EU.

Angela Merkel and Nicolas Sarkozy beat a partial retreat, however. They did not present a formal paper at the summit, as had been widely expected. But that did not stop an ill-tempered debate over lunch of poached organic salmon and roasted cauliflower. Enough of the contents had been leaked previously – the most detailed summary was an article in Der Spiegel. Most countries found something to object to, whether in substance, in form or both.

Ireland, for example, was livid about the idea of “convergence” in taxation that might force it to raise its low rate of corporation tax. Belgium was apoplectic about the insinuation that it would be made to abolish its index-linked wage system. Several countries outside the euro-zone disliked the notion that the 17 euro-area members would hold separate summits, rather as finance ministers of the euro zone meet regularly the day before ministerial meetings at 27.

More generally, smaller countries, of which there are many, resented the diktat from France and Germany. They were also suspicious of the Franco-German call to co-ordinate such far-reaching measures directly among governments, rather than through the European Commission (the EU's civil service). These doubters include fiscal hawks like the Netherlands, who are less likely to object on the substance.

Many of the same issues are already being addressed through the commission’s beefed-up system to monitor economic and budgetary policies. Under legislation being discussed since September, this will eventually include the option of economic sanctions against countries that do not follow Brussels’ economic prescriptions.

The day ended with a fudge: Herman Van Rompuy, president of the European Council (representing the 27 leaders) is being asked to confer with the 27 member-states to find out what kind of economic co-ordination could be agreed, in close consultation with the commission. The outcome will be discussed at a one-off summit of the euro-zone in early March, and finalised at a summit of all 27 members at the end of the same month.

So does this mean the Franco-German proposal is dead? Not so fast. One European official says it was “greatly reshaped”. But there seems to be enough left in it for Mr Sarkozy to boast that the notion of “economic government”, of which he had once been a lonely proponent, is now becoming reality.

He also seemed to take for granted a multi-speed Europe: leaders of the 17 countries of the euro-zone would meet when necessary to discuss business strictly related to the euro. This has happened three times in the past but may become more regular. Countries outside the euro would be invited to join in the “competitiveness pact” if they so wished; the leaders of this “17-plus” group would meet to agree matters related to the pact. Finally, leaders of all 27 EU members would meet as usual to discuss all other business, including matters related to the single market.

If all this comes to pass, one can envisage a European Union of three concentric circles: a 17-member euro-zone core, and wider “17-plus” group of countries willing to co-ordinate their economic policies and a looser group of 27, including Britain, which has no desire to be involved in the integration of the euro zone and is becoming ever more distant from it.

What Mr Sarkozy probably wants most of all is the smaller core of 17*, which resembles the older, smaller European Union where France wielded great influence. Mrs Merkel is probably most interested in the 17-plus group, requiring the political commitment from fellow leaders to adopt the economic model of the “most successful countries” (that is, Germany). This is the price she wants for Germany’s agreement to create a permanent bail-out fund for the euro zone from 2013, and to expand the current temporary one.

Few euro-zone members will disagree with the need for greater convergence, but agreeing what specific measures to take is another matter altogether. Not even the French and the Germans agree on what should be included in the pact. Asked whether France would reform the wage-indexation of its minimum wage, Mr Sarkozy replied curtly: no.

* My apologies for a confusing typo. The sentence which read "smaller core of 1" should be "smaller core of 17".

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.