WHAT'S LIKELY TO BE CONTENTIOUS
The idea of project bonds are seen by many politicians and economists as a step towards so-called "eurobonds" — jointly issued bonds that could be used to fund anything and could eventually replace an individual country's debt. Eurobonds would protect weaker countries, like Spain and Italy, by insulating them from the high interest rates they now face when they raise money on bond markets. Those high interest rates are ground zero of the crisis: They forced Greece, Ireland and Portugal to seek bailouts.
EU President Herman Van Rompuy has encouraged participants on Wednesday to discuss "innovative, or even controversial, ideas." He has suggested that nothing should be taboo and that long-term solutions should be looked at. That seems to point to a conversation about eurobonds.
But Germany is still staunchly opposed to such as measure. On Tuesday, a senior German official stressed that despite the pressure from some other European countries, Merkel's government has not eased its opposition.
"You can wake me up in the middle of the night, at 3 a.m., and then I will tell you what our position is — also at 5 a.m., it doesn't matter. We think that eurobonds are not the right path for many reasons and in our opinion they cannot be part of a growth strategy," said the official, who briefed reporters on condition of anonymity in line with government policy.
What was needed instead, the official insisted, was work to eliminate the underlying problems by trimming the nations' high debt burden and restoring their competitiveness through structural reforms.
WILL ANY OF THE SOLUTIONS WORK?
The problem with many of the solutions on the table is that even if they are all implemented, they would likely take years to yield growth. And Europe needs faster answers.
To that end, many economists are pushing for a larger role for the European Central Bank — the only institution powerful enough to have an immediate impact on the crisis. If Europe's central monetary authority was given the power to buy up a country's bonds, that government's borrowing rates would be pushed down to more manageable levels.
"In the immediate future, the ECB will remain the only institution with the resources, speed of action, and policy instruments necessary to shore up confidence in the single currency area, a role we expect it will play, should conditions necessitate," a Eurasia Group note said Tuesday.
Another problem is that a surge in popularity of anti-bailout parties in Greece may force European leaders to reconsider their commitment to austerity very quickly. Expectations are that a new Greek government after June 17 elections could seek to renege on the country's austerity program. Greece's bailout creditors in the eurozone would then have to decide whether they are willing to ease austerity to favor growth. If they do not and cut Greece off from aid, the country would default and likely have to leave the euro.
Germany's central bank said Wednesday that the eurozone would be able to cope with Greece failing to implement austerity. But many analysts say that could just be fighting talk to persuade Greece to stay with the austerity and in the euro, as a breakup of the currency union would be devastating for the country and destabilize the rest of the continent.
WHY IT MATTERS
Taken together, the European Union is the world's largest economy. If it isn't growing, that weighs on everyone else. A lack of growth is also hurting the continent's efforts to rein in deficits and cut debts. When growth slows, so does tax revenue. That makes it harder for a government to balance their books — which can mean they have to make even deeper cuts. But the cuts themselves eat into growth: when government jobs and state investment projects are slashed, people have less money in their pockets to spend.
Breaking that cycle will be key to getting European economies growing again.
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