The EU summit just ended took important decisions aimed to restore confidence of the financial markets in the Eurozone. But it is doubtful whether they go far enough to restore the degree of confidence needed so that Eurozone countries can roll over some 250 billion Euro of debts maturing in the firrst quarter (Q1) of 2012. To manage the instability that such financing may cause, the smoothening intervention of the ECB will be crucial.
|Mario Draghi -King of Euro(pe)|
Also the fact that the ECB continues to resist aggressive bond buying of sovereign debt means
that the countries in distress cannot and should not rely on easy ECB funding which could
soften their resolve to stick to their austerity reform program. The ECB can point to
Berlusconi to expose the consequences for those who don't deliver on their promises.
So Draghi is for the next few months or probably for most of 2012 the king of Europe. He has
the power,through the ECB council, to save or sink countries with massive borrowing programs.
Those who ease off their reforms will be punished through high yields on their debt as the ECB
sits on it's hands. Those who persist and deliver will be rewarded by lower yields through
ECB intervention and market confidence.
As to the decisions by the EU Council the broad agreements announced so far do not constitute
a common fiscal policy but more effective fiscal discipline about which Malta should be in
Fiscal union would involve harmonised tax rates and spending limits which would detract
sovereignty and which Malta should resist. The devil will be in the details so it would be
wise for government and opposition to consult widely to adopt a common front in the national
What is disappointingly missing from the agreements is any commitment from the strong core EU
countries like Germany that can borrow long-term funds at absurdly low rates on the markets,
to compensate the fiscal tightening of the countries in distress by fiscal loosening on
their side. There can be no economic growth if all adopt fiscal tightening and without
economic growth there is just no future.
Germany should do more than try to make all the the others look like Germany! They can do
with a Mediterranean dimension themselves. Meeting half way is always less painful!