12 July 2012

John Wyles: Glimmers of hope in the eurozone gloom

Compared to past cycles of political and economic reform in the EU, this is an extraordinary record of rapid achievement that has brought the Union closer to the lasting remedies based on shared financial responsibilities advocated by commentators and analysts, writes Wyles for European Voice.

Amid the gloom of last week's headlines, too little space was devoted to Ireland's significant success in raising €500 million of short-term debt. Unless the eurozone's overall weakness pushes Ireland back into recession, the country remains on track to exit the bailout process in 2013.

And despite doubts about German Chancellor Angela Merkel's willingness to go the last mile to debt mutualisation, her tactical skills and pragmatic determination have driven eurozone countries towards greater integration. The June summit promised a Europe-wide banking supervisor and joint funds for recapitalising troubled banks that would not be added to their host country's debt burden. Important elements of a banking union are still missing, but it seems that up to €100 billion will be available to recapitalise Spanish banks.

Much gratitude is also owed to the European Central Bank (ECB) for keeping the banking system alive through a variety of unprecedented funding mechanisms. Finally, eurozone governance has been modestly strengthened by procedures policed by the European Commission designed to ensure that governments follow new fiscal rules and strive for enhanced competitiveness.

Doom-sayers continue to insist that the EU cannot buy time for eurozone reform without putting an infallible prop under the Italian economy. This could be done by allowing the ECB to buy unlimited quantities of Italian debt, or allocating the necessary resources to the EU's permanent bail-out fund, the European Stability Mechanism, or by issuing jointly liable eurobonds. Agreement on any of these measures is bedevilled by German unwillingness to change the ECB's role or to shoulder any more of the eurozone's financial risk. Merkel's position on eurobonds is “not in my lifetime”.

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