Clashes took place between Greek workers and police as demonstrations continue in opposition to the austerity measures imposed by the government in response to the world economic crisis., a photo by Pan-African News Wire File Photos on Flickr.
13 Dec, 2011, 02.02AM IST, Reuters
Eurozone debt crisis: EU plan may fail to calm wary investors
BERLIN: Last week's EU summit went a long way towards forging the closer economic ties needed to prevent future debt crises but markets are likely to judge it as too little and too late to solve the current one. As on previous occasions, the measures are unlikely to calm investors for long.
European Union (EU) leaders ended the summit with a historic agreement to draft a new treaty for deeper integration in the eurozone, but analysts and policymakers remained sceptical that such long-term steps could solve the crisis that has shaken Europe for two years.
While German chancellor Angela Merkel said she didn't expect leaders would meet again before Christmas, a senior EU official said he thought market pressure would compel them to meet in a room together again sooner rather than later.
The euro slipped early on Monday, safe haven German government bond futures rose and European stock futures were pointing lower, though none of the moves were dramatic.
"The moves by the eurozone policymakers are not a damp squib but neither are they the big bazooka hoped for that could really ease market tension for an extended period," said Howard Archer, economist at IHS Global Insight.
The euro slipped in Asia on Monday as investors took the view that the EU plan was not the decisive move needed to resolve the debt crisis. EU leaders agreed to lend up to 200 billion ($267 billion) to the International Monetary Fund to help it aid eurozone strugglers, and to bring forward the permanent rescue fund European Stability Mechanism (ESM) by a year to mid-2012.
Those steps, together with a leveraged EFSF - the existing bailout fund - are intended to boost help for troubled eurozone countries, such as Italy and Spain, the bloc's third and fourth largest economies, as they muddle through their refinancing crunches.
Italy alone has 150 billion in debt falling due between February and April of next year. However, it is still months until the ESM comes into force and few international investors seem keen to pay into the European Financial Stability Facility (EFSF).
Add to that the Damocles' sword of a Standard and Poor's rating downgrade hanging over euro states, which would also likely prompt a downgrade of the EFSF's credit worthiness, and the available funds could well fall short of needs again.
S&P's statement that its review was due to end "as soon as possible" after the summit is likely to keep investors on their toes this week. "The pattern of previous EU summits seems to be repeating itself. Prices increase ahead of the summit, only to crumble afterwards," said Markus Reinwand of Helaba.
Indeed, Moody's Investors Service reiterated that it would complete a review of ratings on EU sovereign debt in the first quarter of 2012.
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