June 23, 2011
As European leaders meet in Brussels with Greece potentially facing a devastating sovereign default, it is easy to forget that just six months ago it looked as though the European Union was about to turn the corner in its debt crisis.
The year started with a successful Portuguese debt auction that – with a little help from bond buying by the European Central Bank – raised €1.25bn ($1.8bn). Lisbon was forced to borrow at high rates, more than 6.7 per cent, but that was lower than many analysts had predicted.
When Spain followed with a successful auction of its own later in the month, one could almost hear officials in Brussels breathe a collective sigh of relief. Thanks to co-ordinated action, policymakers looked like they were finally beating back the bond market.
EU leaders appeared to be coalescing around a proposal to give the fund powers such as purchasing bonds on the open market or lending money to struggling countries to buy back their own bonds.
The idea was to use the rescue fund pre-emptively to avoid full-scale bail-outs and prevent contagion. José Manuel Barroso, the European Commission president criticised for being too timid in the midst of the crisis, urged EU leaders to agree rapidly.
But the overhaul that could have put the eurozone on the front foot never happened.
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