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This plan, like all the other ones designed over the past 19 months, will fail: The text, like the previous ones, contains a lot of waffle: many words but nothing immediately concrete whilst the liquidity crisis is hurting right now and the solvency one is round the corner, all final decisions and details being pushed back to March 2012. The objective was once more to kick the can down the road The fiscal compact falls short of a true fiscal integration. And without it, the ECB (the Bundesbank) will not finance European sovereign debt until the very last minute if any, i.e. when the cost will be horrendous for European citizens. Rules are tightened to curb future debt but nothing is done to resolve the current insolvency of banks and over-indebted countries. The crisis is now, not next year or in two years time. EUR 500 bn is nowhere near what is required: EUR 1-2 tr (Euro-area governments have to refinance more than EUR 1.1 tr of debt in 2012 plus aprox 300 bn of new debt without the potential bailout of a few banks).
http://marketsandbeyond.blogspot.com/ http://www.pcgwm.com/ The private financial sector is lo longer accountable for its mistakes increasing moral hazard. There is no guarantee that the sanctions to be imposed on deficit countries will have any effect since they know that it is doubtful the would be thrown out of the EZ (otherwise Greece should have been kicked out over a long time ago); the only efficient threat of sanction is for countries to loose their voting and vetoing powers with the EU institutions and put such countries under tutelage. Politicians do not care about other (financial) sanctions.
The three main roots of the crisis are not addressed: o Unbalanced financing of sovereign debt deficit: The EU does not lack savings but Northern investors are rightly reluctant to finance Southern Europe. Domestic retail investors should be called upon with attractive enough terms. o Unbalanced trade: the competitive north increases its competitiveness vis--vis the south which has a growth model based on consumption, which is not viable long term and showed its limits. o Lack of growth, itself a result of the absence of fundamental social and economic reforms in Southern Europe. The ECB is the only institution with the means to backstop European sovereign debt and provide unlimited liquidity to banks. This must be accompanied by deep structural reforms including pushing back the age of retirement (at least 65 years and probably beyond if no sharp improvement in the fecundity rate of Europeans), lengthening the weekly working hours to at least 40h and probably 42h without a commensurate salary increase and drastically reducing the functioning cost of government and local authorities by reducing the number of civil servants or their salaries (its increase rate should be limited to a maximum of 50% of the GDP growth rate). The alternative is debt restructuring or outright default. As it stands today, the grand plan lacks credibility. Markets also seem very skeptical
http://marketsandbeyond.blogspot.com/ http://www.pcgwm.com/ Source: European Council: Statement by the Euro area Heads of State or Government http://www.consilium.europa.eu/uedocs/cms_data/docs/pressdata/en/ec/126658.pdf European Commission: Economic Governance in graphs http://ec.europa.eu/europe2020/priorities/economic-governance/graph/index_en.htm Bloomberg: Euro Leaders Push Budget Rigor 20 Years After Maastricht With Onus on ECB http://www.bloomberg.com/news/2011-12-09/euro-states-to-shift-267-billion-to-imf-asfocus-shifts-to-deficit-deal.html 15 December 2011