July 14, 2011
It must have been a satisfying letter to write. European finance ministers meeting in Brussels at the start of this week got a stern wigging from George Papandreou, the Greek prime minister. Insisting that his country had done its bit by pushing through painful reforms, he condemned the “indecisiveness and errors” of the European response to the crisis: “a cacophony of voices and views” had prevailed, “creating more panic than security”.
Mr Papandreou’s critique rings true but there is no denying the complexity of the threefold problem confronting European leaders, who are said to be planning an emergency summit in Brussels. First, they must make up their minds on how to deal with Greece, rescued once but needing even more help. Second, they must prevent the crisis taking deeper hold, not just in Ireland and Portugal, but also in Italy and Spain, the third- and fourth-biggest economies respectively in the euro area. And third, they must ensure that the sovereign-debt crisis does not precipitate a banking crisis—results of stress tests on European banks are due to be published late on July 15th, with a stream of announcements from national authorities on how they plan to recapitalise failing institutions likely to follow.
The response to all three problems is made so complicated by the fact that Europe’s monetary union lacks a fiscal underpinning. With northern electorates in the creditor countries—notably Germany, but the Netherlands and Finland, too—hostile to bail-outs of profligate peripheral borrowers, European leaders have been able to put together only a limited set of fiscal resources and tools. The most important of these is the European Financial Stability Facility (EFSF), whose effective lending capacity, based on guarantees from euro-area states, is due to rise from around €250 billion ($350 billion) to €440 billion this autumn. That does not look like enough.
More
No comments:
Post a Comment