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The most critical week for the eurozone
- The eurozone summit in Brussels last week was considered to be an epoch-making event, having a bearing on the future of the euro and the monetary union.
- Germany has been in favour of fully automatic sanctions (in case any country breached the new fiscal rules) with national budgets submitted are balanced for review by a supranational technocrat as a means of restoring confidence in the currency bloc.
- France has favoured a more flexible, politically governed approach. It wants to retain the inter-governmental approach, never mind that such an approach has been found wanting.
- Mario Draghi, President of the European Central Bank (ECB)
- ECB has resisted the pressure to provide unlimited support to the system either by backing the bailout fund or through a long-term guarantee of bond prices.
- Politicians have failed to deliver on their promises of reform and it is this growing cynicism over politicians, which is the single biggest factor, underpinning the crisis.
- The break-up of the single currency once considered unthinkable is freely talked about.
- Banks in Europe have become extremely vulnerable. Most of them are undercapitalised and face a severe shortfall in funding.
- The new ‘fiscal compact' aims for stronger coordination of economic policies in the areas of common interest.
- Eurozone states' budgets should be balanced or in surplus; the annual structural deficit should not normally exceed 0.5 per cent of the GDP. These rules will be built into their national legal systems.
- If any eurozone member is in breach of the 3 per cent debt ceiling, there will be automatic consequences, including possible sanctions.
