Bracing Europe

Financial Times
Editorial
September 27, 2011

The eurozone’s “comprehensive” crisis solution, which parliaments are finally getting around to voting on, was overtaken by events soon after it was ostensibly agreed two months ago. Behind the rituals of parliamentary procedure, the real decision makers are busy looking for ways to make the July package do things it was meant to render unnecessary.

With good will and good fortune, the European financial stability facility should soon have some of its shackles lifted. Finland and Germany, the two most influential obstacles to an upgrade of the eurozone’s main crisis management tool, see their parliaments vote today and tomorrow on whether to expand the EFSF’s scale and scope. The signs are that the votes will pass, if grudgingly.

Outside of the legislative chambers, events are not on pause. The best that can be said is that policymakers are not blind to them. The Greek economy, which looks worse by the day, is not only forcing Athens to look for yet more austerity measures – such as a new property tax increase – but coaxing other capitals into questioning whether the modest haircut asked of private investors in the July package is enough. Looking past Greece, eurozone leaders increasingly admit that more money is needed than the EFSF’s promised €440bn to dam sovereign debt market contagion. And the new European Systemic Risk Board warns of “rapidly rising” threats to the continent’s banking system.

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