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It's crunch time for Europe

Head of the International Monetary Fund (IMF) Christine Lagarde (L), Irish Taoiseach Enda Kenny (3rdR) and Dutch Prime Minister Mark Rutte (R) listen to German Chancellor Angela Merkel during the meeting of Heads of State or Government of the Euro area as part of an European Council at the Justus Lipsius building, EU headquarters in Brussels on October 23, 2011.

By Bloomberg's count, today's euro crisis summit is the 14th in 21 months. The big question is whether number 14 will result in anything more solid than the first 13. The eurozone leaders are trying to solve three main issues: a decision on how big a loss Greece's creditors will face; a plan to get money to Europe's banks -- among the big holders of toxic Greek debt -- and a way to increase the size of the EU bailout fund to help nations in trouble with their sovereign debt.

We talked with Jennifer McKeown, senior European economist at Capital Economics in London. She says of the three issues, the decision on how much of a haircut Greece's creditors face is the most likely to be settled at the summit. But, McKeown says, anyone expecting a comprehensive "shock and awe" plan to emerge from the summit is likely to be disappointed.

McKeown says there's just too much bureaucracy to manage and overcome. For instance, German Chancellor Angela Merkel had to get approval from her legislature just to attend the summit, not to mention how to approach the issues once she arrived.

In fact, McKeown thinks the problems are so intractable that they could lead to the breakup of the European Union. She points out that these issues are starting to cause domestic problems in countries across the continent, in debtor nations such as Greece and Portugal, and as well in the three biggest EU countries: Germany, France and especially Italy.

McKeown says the breakup could just be Greece departing the eurozone, or it could be much more widespread. She says she can imagine a scenario in which Germany has to leave. That nightmare scenario could result in a new German mark so overvalued that it brings Germany's export economy down with it. McKeown also imagines a possible scenario in which Germany leads a new smaller union of countries that agree with its policies.

No matter what happens, McKeown says she can't imagine this summit will be the one that solves Europe's problems. McKeown says it could take many, many more such meetings before the Europeans get beyond their crisis.


Also on the show today, news that the cost of public and private universities are increasing faster than the rate of inflation is a big hit to the Marketplace Daily Pulse today. Tuition at private, four-year schools went up 4.5 percent this academic year. Public school tuition grew at a rate of 8 percent on average. Read the story.

About the author

David Brancaccio is the host of Marketplace Morning Report. Follow David on Twitter @DavidBrancaccio
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