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Financial Times
February 21, 2012
Give credit where credit is due. In November a minority of agitated European politicians, aghast at the turmoil on government bond markets, were questioning if the eurozone would survive intact beyond Christmas. Now there is no such sense of panic. The ocean is far from calm and more storms lie ahead. But Europe’s policymakers have at least ensured that the good ship Monetary Union will not capsize in the near future.
Several factors have contributed to stabilising the eurozone over the past three months. First, Mario Draghi, the European Central Bank president, introduced a programme of large-scale cheap credit for banks. This reduced stress in Europe’s financial system and lowered borrowing costs for governments. It is noteworthy that the ECB felt no need last week to buy sovereign bonds on the secondary market.
Second, the replacement of the feckless Silvio Berlusconi with the reformist Mario Monti as Italy’s prime minister calmed investors’ fears that the debt crisis would engulf the eurozone’s third biggest economy and trigger the euro’s demise. Mr Monti is showing much courage in confronting Italy’s domestic economic rigidities. He is also improving the quality of debate at European level, by spelling out the need to balance austerity with economic growth and strengthen the eurozone’s permanent rescue fund.
Third, negotiators on all sides showed common sense in striking a deal in the early hours of Tuesday to restructure Greece’s debt, extend fresh loans and avert a disorderly default. Everyone made compromises, from private sector bondholders to the northern European governments which are under pressure from their electorates not to be gulled into pouring money into a bottomless Greek pit.
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