What next for the Euro? As forecast in this blog, the Euro-zone countries have been forced to stump up a massive rescue package in order to avert a sovereign debt crisis in Greece and other Euro-zone countries. Will that be enough? Possibly not, if the continuing state of unease displayed by the financial markets is anything to go by.
In this ongoing tacit negotiation between the Euro-zone countries and the financial markets, one problem is that the Euro-zone “negotiation team” need to project an air of certainty and conviction about their commitment to the Euro and each other. Yet the key members of that team, President Sarkozy and Angela Merkel, look about as united as Katie Price and Peter Andre.
Any disunity in the team on one side of a negotiation will always be picked up by the other and exploited to its disadvantage. So, irrespective of their differences, Sarkozy and Merkel need to stop looking like the Odd Couple, and start looking like a dream team, or they will inadvertently prolong the very crisis they are seeking to bring to an end.
Together with the IMF, the EU has created a loan-and-guarantee package worth €750 billion. This is intended to stop international money markets forcing up government bond interest rates – in Greece, Spain and Portugal – to such unsustainable rates that their debt collapses under its own weight, and sparks a wider Euro-zone debt crisis.
The package included €220 billion provided by the IMF, €440bn of government-backed loan guarantees and a commitment for the European central bank to buy European sovereign bonds. What’s more, to combat rising financial market tensions triggered by market fears over public finances in the weaker Euro-zone countries, the EU decided to […]
