Fiscal measures to 'save euro from collapse'
Updated: 2011-12-11 08:55
By Fu Jing (China Daily)
BRUSSELS - Observers believe that the stricter fiscal measures achieved at the EU summit on Friday could "save euro from collapse" but as to what degree will depend on how swiftly the rescue package is fully implemented.
After much heated debate, nearly all the leaders of the European Union states agreed to set up a new fiscal compact and strengthen economic policy coordination.
Meanwhile, they will beef up financial stabilization tools to counter short-term challenges.
But the new requirements must gain approval from national parliaments and the public may protest against the measures, which may lead to job cuts in public sectors, extension of the retirement age and wage cuts.Henri Lederhandler, vice-president of the Belgian-Chinese Chamber of Commerce (BCECC) told China Daily: "All the measures are in the right directions and will take time to implement."
He said that some media, experts and market players have played up the scenario of a euro collapse, which have brought about panic, mistrust and speculation and in return, misled some governments.
"I don't think the euro will collapse as we can see European governments are roughly on the same page even though it is time-consuming and debates are hot," said Lederhandler.
But he could not say when the situation will start improving.
European leaders, except a veto by the United Kingdom, have agreed on a new fiscal rule, requiring member states to achieve budgetary lance or surplus.
"This principle shall be deemed respected, if as a rule, the annual structural deficit rate does not exceed 0.5 percent of nominal GDP," the statement by the leaders cited.
It also said "automatic consequences" will be applied to member states if any fiscal deficit rate surpasses the three percent ceiling and the government debt ratio to GDP surpasses the 60 percent criterion.
European Council President Herman Van Rompuy said the new fiscal compact is going to be put in place in March. However, obstacles remain as the new requirements need the intervention of national parliaments, some of which may disagree, although the European Parliament may favor in the new legislation.
British Prime Minister David Cameron's veto has invited mounting public criticism. The UK's Guardian newspaper said: "The two-speed Europe is here, with UK alone in the slow lane."
A Brussels-based British diplomat, said in anonymity: "Cameron is in the interests of bankers, financial investors, not in the interests of Britons, Europeans and euro."
"And if the euro collapses, the big EU political machine will collapse and I will lose my job," said the diplomat in jest.
Despite the criticism, the London-based consultancy company IOD said there is a fundamental structural failure at the heart of the euro project, namely the absence of a sovereign lender of the last resort, such as the European Central Bank (ECB), which would allow it to engage in massive bond purchases. In a new report, the IOD argued that unless this fundamental problem can be overcome, a break-up was inevitable.
Graeme Leach, Chief Economist at the IOD, said: "We can have one EU summit after another but they will achieve nothing until they address the fundamental problem that euro-zone countries don't control the currency in which they issue their debt."
Leach said the only game-changer out there is a complete change of heart by Germany to allow the ECB to print money and buy sovereign bonds.
"But we have serious doubts that will ever happen," he said. "This is a make or break weekend. It's the ECB or bust. If the ECB doesn't get the nod to operate a quantitative 'euro-zing', we think a break-up is then a done deal."