Today, Europe’s leaders are gathering in Brussels to try and draw a line, once and for all, beneath a sovereign debt crisis that has been dogging the Eurozone since 2009. It has been described in the media as a “make-or-break” summit, where either the crisis will be solved and markets will return to normal, or there is a growing risk that the Eurozone might start to come apart at the seams. Understandably, European leaders have been keen to play down expectations for tonight’s summit.
We recently looked at what a collapse of the Eurozone might look like, and we’ve also debated the effects of Germany leaving the Euro and a Greek default. Greek blogger Protesilaos Stavrou contributed a comment to Debating Europe arguing that it is “all or nothing” when it comes to the Eurozone. Any moves toward a partial break-up of the single currency would result in the whole thing collapsing in on itself.
Severing a part of this ‘organism’ will doom both the part and the whole just as if a vital organ is removed from the human body where both eventually die. The reason that is true is because the country that opts out will trigger a chain reaction in the banking sector and in all other sectors it can influence, which will see private banks and other corporations falling one after the other just like in a domino. Moreover the markets will begin to speculate over which will be the next country to exit, there will therefore be immense speculative pressures which will eventually drive more countries out until the point where the currency union collapses, leaving behind chaos and severe open wounds.
Debating Europe recently spoke to Paul Taylor, European Affairs Editor for Reuters, about the crisis. He explained that there is an emerging consensus that Greece will need to have a severe write-down of its debt, but the problem is that politicians are trying to do the impossible. They want the write-down done on a voluntary basis, but they also want to avoid tax-payers having to take losses and they also want to avoid the European Central Bank (ECB) having to take losses – and achieving all three will be very difficult.
We also spoke to Tony Barber, the Financial Times Europe Editor, and asked his take on events. He insisted the chances of a Greek write-down were now “100%” and the question was now about avoiding contagion and preventing a Greek restructing from becoming a “credit event” that triggers the kind of Credit Default Swaps (CDS) that caused so many problems during the 2008 crisis.
Finally, we spoke today to Professor Jörg Rocholl of the European School of Management and Technology, and asked him what he expected to come out of today’s meeting:
There are three measures that will probably come out of this meeting. The first will be that there will be a more substantial involvement of the private sector in Greece – meaning bigger ‘haircuts’ for investors. Second, there will be a more extensive firewall, so the leverage of the EFSF will be substantially increased. The third part will be the recapitalisation of Europe’s banks to the tune of about 100 billion Euros.
Does he think these measures will be enough to finally draw a line under the crisis?
On the first point, the private sector involvement in Greece – even if it’s a haircut of 60% – in my view is not enough because the overall debt level in Greece is too high. Even a substantial haircut to those holdings will not be enough to bring Greek debt to a sustainable level. More of this will follow. Even a haircut of 80% or 90% on private banks might not be sufficient.
On the second point, the ring-fencing or the creation of the firewall in order to avoid contagion certainly may work, if there is a really credible signal sent out that the debts of other countries are to be protected. At the same time, it may also lower incentives in some countries to achieve sustainable budget situations. In that sense, there could be an over-reliance on other countries to step in.
I view the key question as being whether Italy, and to a lesser extent Spain, will be able to get out of this crisis on their own. Because if Italy cannot reform on its own, this means these different rescue packages would not be sufficient and the numbers involved would be too big for Europe to handle – with France, and even Germany, risking the loss of their AAA credit ratings.
What do YOU think? Do you have confidence that Europe’s leaders will be able to come to a solution? Or do you believe that they will continue to “muddle through” and “kick the can down the road” until it’s too late? Can European economies push through reforms in time? Let us know your thoughts in the form below, and we’ll take your comments to policy-makers and experts for their reactions.
A monetary union policies should be accompanied by European social and fiscal harmonization
europe needs turkey to be stronger please make a difference ,i dont think it s ok now
The way our leaders are behaving, I am not holding much hope anymore….
I think you need to put a council in Greece for close looking of the flow of money – where they go exactly? In the bank acounts of the leaders or what? Greece stole much of the money given at the time of Olympic games. These people are famous for ages for their calculating mind and trade orientation in a bad way-to take from you, to grab the most they can. They are corrupted and care for their bank acounts only and now regular Greek people suffer. Many businesses closed and their leaders and close asociates get richer and richer.
http://www.youtube.com/watch?v=HZYKaAMjdOQ – we do need the Council of Europe to discuss the strategy, cooperation. However, we do not need eu parlament, commission ecb, etc to tell us what we have to do or what we can. We’re not so stupid, indeed. Watch the video above
I have just published an article on the matter, where I analyze paragraph-by-paragraph the final document of the summit. Your readers might be interested to see it: http://protes-stavrou.blogspot.com/2011/10/full-analysis-aftermath-of-october-26.html#.TqplpHJiPa4
Here is in an extract from the conclusion: “The Euro summit is now over. In the first days there will be some enthusiasm in the markets. Yet once the dust has set, once the echoes of triumphant rhetoric of European elites fade away, once editorials are written pointing to the inanity of the latest summit, speculation will once again strike back on an unsuspected collective of political elites who have been extending and pretending for nearly two years now. ”
While it is good to see Europe taking concrete steps to resolve the crisis I still do not see anything that gives me confidence that the southern European countries are on a path to long term prosperity and stability. The key will be whether these countries are able to maintain their fiscal discipline once the economy improves or if they will undo whatever reforms they make during the crisis.
The problem of the Union its their members nationalisms, because they don’t see us as a whole and that’s our biggest problem. We have to walk towards more federalism and strengthen the European Commission or all of what we managed to win will go down. This EU with France and Germany deciding what everybody else has to do is not a real Union, the one we believe in, and we’re skating on thin ice. Are a Union of solidarity or an Union of each of for itself? A shame what the Union did to Greece. I don’t feel surprised that the people is stupid and don’t mind if the people of other nationalities sink, but the Governments should know it better, but I guess they are only interested in getting elected again. Without federalism and the people seeing the Union as a whole, we’ll never be strong.
We don’t need EU and euro. We just need Schengen and Free Trade Agreement.
EU as a federalist state is doomed and was doomed from the beginning!
yep…the euro is doomed….and not before time.
Global economic conquest under-construction coming soon to a country near you. I’ve been waiting for this next step in the wrong direction for a long time now. People need to understand that the whole economic crisis was created to force a global (private) bank upon us all. How does it feel to be enslaved with you own money? All our countries lost their sovereignty when they joined the EU (who are currently controlled by corporations and private bank interest, it’s partitioned off and allot of people don’t have a clue what their helping to create and are conned in believing global government is the best option for the people). Please for the future of your children and their children, please go out and look for the fact’s at the moment we still have the power to spread the truth online and true other platforms, if we do not act we will lose that right sooner then we might expect. Support organizations that spread the truth like wikileaks, infowarsdotcom.
It was doomed even before the idea of euro was imagined !
I pray to god it is doomed! they do not care for the people it is nothing but a corrupt gravy train, take a look at the kinnocks and mandelsons of this world and see how much money in salaries and “expenses” they are syphoning off it is ridiculous, while me and mine get poorer at a menacing rate!
wealth can neither be created nor be destroyed people must learn to change their habits and lifestyle with changing circumstances those who tries to resist the flow eventually get dissolved but it does not mean blow with the wind one just need to change their course when flow becomes overwhelming.