A large majority of respondents to a gtnews online poll held last week on our homepage do not think that the fiscal compact signed in Brussels at the end of January will necessarily save the euro.
In response to the question as the ‘fiscal compact’ to co-ordinate budgets in the 17 member eurozone is signed in Brussels, do you think the end of the eurozone crisis is now in sight?, 67 people voted no. Out of 85 votes cast that is an extremely large majority who remain unconvinced that the fiscal compact alone can stop the crisis. There were only nine yes votes agreeing with the proposition that the end of the eurozone crisis is now in sight because of the fiscal compact, with 19 people voting don’t know.
The agreement reached in Brussels on 31 January will mean that in future the 17 members of the eurozone will have to submit legally binding national budgets that set out clear debt parameters that cannot be breached, hopefully preventing another situation where Greek, Irish, Italian and other sovereign debt levels threaten the very existence of the single currency. The European Court of Justice (ECJ) will in future also be empowered to monitor compliance and impose fines on any national rule breakers who do not meet the so-called fiscal compact. This is a clear departure from the old stability pact which tried to enforce budgetary rules at the turn of the millennia when the euro was first introduced. It was largely ignored due to fears about interfering with the sovereignty of European nations and about delaying the introduction of the euro.
The reasons for the scepticism of gtnews readers about the fiscal compact riding to the rescue of the present eurozone crisis are clear. Not only does the history not bode well, but the socialist candidate in the French presidential election, Francois Hollande, has already promised to renegotiate the treaty if he wins the election. Even if renegotiating the treaty may not be so easy, without France and Germany – the traditional drivers of European integration – driving the fiscal compact through European institutions and governments the agreement to enforce common debt levels and budgetary constraints may falter.
The fiscal compact is also only one aspect of what is needed to ease the eurozone crisis and it is a long-term measure at that. More immediately, the second bailout for Greece, and the associated ‘haircut’ for private investors, needs to be negotiated and debt levels in Portugal and elsewhere across the region need to be brought down before the markets potentially forces a nation out of the eurozone due to unsustainability high interest rates on government bonds. The majority of readers seem to think that the politicians should be focusing on these more immediate aims before worrying about budgetary rules for the future – however important they are as part of the overall solution.
• The gtnews online poll will become a regular feature on our homepage. This week’s question is: With the EC confirming a hard compliance deadline of Feb 2014 for the single euro payments area, will SEPA impact your business in 2012? (or is it on hold until next year). VOTE NOW and join the linkedin discussion groups on our open friends of gtnews forum and our treasury expert panel.
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