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20 February 2013

Graham Bishop's Blog: '2-pack' agreed between Council and Parliament


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Finally, a compromise has been reached on the '2-pack'! This should have happened months ago but the timing is fortuitously good for the euro.


Finally, a compromise has been reached on the '2-pack' (link to Commission description)! This should have happened months ago but the timing is fortuitously good for the euro. As the markets began to believe that the worst of the crisis may be past, a failure by the politicians to finalise the new economic governance arrangements would have sent a terrible message. Instead, the third round of the annual economic governance process – the European Semester – is gearing up and a good outcome of the procedure may well encourage the euro area states to agree to a 'big bazooka’ to underline their new found unity of purpose. The agreement to create an 'expert group’ to study the possibilities of a 'redemption fund’/eurobills should be recognised as a good step forward. A Temporary Eurobill Fund (TEF) could be brought into action swiftly as it does not require fundamental decisions with consequences that will last long into the future (link to my paper on a TEF).

Swift action may be required if markets react badly to any failure to reach agreement to rescue Cyprus from the natural consequences of its economic and financial policy errors in recent years. On the other hand, those policies have been so extraordinary that market participants should recognise the unique nature of a decision that has to respond to the facts on the ground.

Rolling blog



© Graham Bishop


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