Bloomberg
Editorial
December 12, 2011
In concentrating on long-term fiscal reform and not the crisis at hand, the Dec. 8-9 European Union summit asked the wrong questions -- then failed to answer even those.
Financial markets won’t care as long as the leaders’ agreement encourages the European Central Bank to support EU sovereign borrowers more forcefully. Unfortunately, it may not.
The EU leaders agreed to write a new pact on economic governance to limit future budget deficits and public debt. It will not be a full treaty revision, which would need unanimity across the 27-member union, because Britain objected. This could be a blessing in disguise, because rewriting the EU treaty could have taken years.
Even this more limited reform, though, will take awhile to tie down. The deal calls for stricter enforcement of existing limits of 3 percent of gross domestic product for annual borrowing and 60 percent of GDP for total public debt. Exactly how these new, more automatic sanctions will work is yet to be decided.
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