Credit markets defiant

While Rome and Madrid are doing their utmost to reassure the markets as to their solvency, the European press remains sceptical about the capacity of Europe’s 27 member states and EU institutions to credibly address the crisis.

Published on 4 August 2011 at 13:24

Two weeks have gone by since the European Council in Brussels approved a second Greek bailout and outlined plans for a "European IMF." As Públicoexplains, "Europe moves at a speed that is inversely proportional to its size: in other words, very slowly. The measures that were adopted in July, and now await approval by some national parliaments, will not take effect until September.” But as the daily points out, "the markets are not about to wait. Interest rates on Spanish and Italian debt are now close to levels that forced Ireland, Greece and Portugal to demand external help."

The "speculators are relentless," writes Le Soir because "we have given them every means" by forgetting to equip funding mechanisms with the necessary budgets and gambling that governments will succeed in striking an impossible balance between austerity measures and growth and recovery. As a result, "Europe still has a major credibility problem." Le Soir continues:

The crisis of faith has its roots in the chronic lack of solidarity between countries. Our leaders are well aware that on returning from European summits, they are better off telling voters that they have protected their short-term interests. The resolution to this crisis, which will be long and difficult, will require the implementation of fully reliable mechanisms that enshrine the principle of solidarity, like the creation of a European Debt Agency with a mandate to issue bonds that can be used to finance all of the countries of the Eurozone. This will imply a compromise on the level of sovereignty and a new treaty. The long and painful process to achieve this goal remains indispensable.

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The same point is also taken up by Les Echos, which insists that "Europe must act while there is time to put an end to the defiance" of credit markets. For the French business daily, European Commission President José Manuel Barroso "has no credibility," which is why, as La Vanguardia points out, his 3rd August remarks on the markets’ "clearly unjustified treatment" of Spain and Italy were “apparently not very useful.” In the columns of the Catalan daily, which leads with an article on the "resignation" of the Spanish population, economist Manel Pérez argues that the “European IMF” will need 2.5 trillion euros if it is "to command the respect of the markets." While waiting for a political initiative "to strike a balance between creditors demands and debtors inability to pay," the ECB "could provisionally gain time, if it were to immediately [as of 4 August] implement a massive buy-up of bonds" issued by countries in difficulty, writes Pérez.

This is a hypothesis that also appeals to De Standaard, which argues that there should be no increase to the key interest rate in the short term: "the European Central Bank should show that it is ready to buy bonds.” ECB President Jean Claude Trichet will have to take charge of this “difficult but vitally important exercise,” because "a poorly received message could prompt further market anxiety which could add to the cost of the later phases of bailout plans."

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