By Chernitsa Polina
After overnight discussions, EU leaders came to agreement on specific steps to rescue the Eurozone out of crisis. The main issue now is whether they will be resolute enough to see it through.
The participants in the summit succeeded in striking agreement on such crucial issues as the recapitalization of banks, an increase in the resources of the European Financial Stability Facility and the restructuring of Greek debts. Before mid-2012, banks should bring the initial capital to 9% of the assets, and overall recapitalization should exceed 50%, or 100bln euros. The EFSF should be boosted to 1tln euros. It is a financial buffer of sorts, designed to protect the Eurozone against further crisis. The Facility’s resources will be used to guarantee commitments on the securities of crisis-hit Italy and Spain. The so-called Special Purpose Vehicles will be set up for the EFSF and private investors to invest in. The mechanism of Special Purpose Vehicle should help to attract more funds. Professor Maxim Bratersky of the High School of Economics, comments:
“Germany, the Eurozone’s donor number one, had the last say on the decision to increase the EFSF funds to 1tln euros. But German taxpayers are unlikely to welcome the idea of paying for Greece. The technical decision on the EFSF has been made. The political one will be hard to achieve.”
According to experts, the “Greek issue” was settled in a strange way. Just the day before the signing, The New York Times quoted Athens’ creditor banks as saying that writing off 55% of the Greek debt would lead to default and irreversible consequences. On October 26th, the Institute of Internal Finance said on behalf of private creditors that no deal on the writing off of the debts had been clinched. Eight hours later, it became clear that Greece had more than 100bln euros of the 350bln euro debt written off. By way of explanation, French President Nicolas Sarkozy said that the creditors had been invited to the summit not for talks, but to be informed about the decisions made. Apparently, the EU leaders have demonstrated an iron will and fierce determination. But these measures will become a mere ad hoc solution in the absence of consistent steps to tackle the debt crisis, says Professor Bratersky of the High School of Economics:
“All these decisions will be temporary unless the governments instill financial order within the EU, as Germany requested. The EU should have a ministry of finance which would set the borrowing limits. The recent decisions are in fact stop-gap solutions to coup the crisis and improve the situation, say in Greece, for a while. No long-term solution is in sight.”
According to the summit’s final resolution, the proposed measures, along with the “ambitious reform plan for the Greek economy should bring the country’s debt down”. Also forthcoming is another one hundred billion bailout package from the IMF, announced by the Fund’s Managing Director Christine Lagarde, even though the three negotiating parties had a hard time agreeing on another tranche just a few days ago. EU President Herman Van Rompuy described the measures as serving the common objective of helping Greece to get back on track. Financial analyst Denis Barabanov says, however, that the best solution for Greece, after two years of troubles, would be quitting the Eurozone:
“Sooner or later, the Eurozone will have to take a harsh solution on Greece. Given the situation, boosting the EFSF looks unreasonable. Greece should be set free to carry out reforms. Argentina, for one, is devaluing its currency before it embarks on the path of growth. Greece should leave the Eurozone. Otherwise, European countries will be paying for it and other countries that will need similar help.”
The recent measures, though dubious, were greeted with optimism. German Chancellor Angela Merkel said after the summit that it had lived to everyone’s expectations. Russia’s presidential aide Arkady Dvorkovich described the decisions as necessary under the circumstances and expressed hope that the markets would react appropriately. The Asian markets confirmed the forecast, growing one percent on average after they opened on Thursday.