Financial Times
July 22, 2011
Europe may have taken an historic step in its meeting on Thursday – it seems, for once, to have done more than “just kick the can down the road”. First, its leaders recognised that it is not just Greece that faces a problem; it is a European problem, which requires a European solution. The euro was, at birth, an unfinished project; it took away two key instruments of adjustment – interest and exchange rates – and put nothing in their place. As President Nicolas Sarkozy has emphasised, this is a major step in correcting this deficiency, creating a European monetary fund.
Second, the leaders recognised that Greece’s problems require a focus on debt sustainability – lowering the debt burden and increasing gross domestic product, and Europe is doing something about both. Not only are maturities being extended, but interest rates are being lowered; but even more important is the commitment to investments that will stimulate the economy, create jobs and increase tax revenues. Growth cannot be restored unless lending, especially for small and medium-sized enterprises, increases. The increased flexibility given to the European financial stability facility may help, but I suspect more needs to be done, for instance through creating a small business revolving fund.
The communiqué from the leaders recognised too the enormous strides that Greece has made and renews the commitment to technical assistance to help Athens implement the reforms that it has undertaken.
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