Vox
October 20, 2011
Time is running out for EU leaders to put an end to the Eurozone crisis. This column explains how leaders could find a definitive solution to Greece insolvency, isolate solvent countries from possible Greek contagion, improve EU governance by creating a true European parliament, and refocus on a pro-growth policy mix.
Next Sunday the European Council meeting should, once for all, dispel all of investors’ concerns about the Eurozone crisis. If the Council is not able to achieve this, it will cross the final red line of patience, making it very unlikely to ever regain the confidence of investors. Sunday may be very soon and only a few days before the G20 meeting in Cannes, but it has been two years since the Greek debt crisis explosion – more than enough time to have solved the crisis.
Importantly, investors are not plotting against Eurozone national governments. They are too diverse for any such conspiracy since we are talking about a major share of the world’s government debt. Rather, investors are afraid. They are frightened by the uncertainty created by Eurozone leaders’ decisions. This makes them move in herds – as usual, rationality tends to become more ‘bounded’ under high uncertainty.
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