Over the 14 ½ Summits of the European leadership since the beginning of the Greek crisis, very little has been actually decided, let alone implemented. In order to avoid a further and catastrophic deterioration of the precarious situation of its public finance, action must be the absolute priority.
Last week, arguments about the role of the European Central Bank and the possible issuance of euro-bonds guaranteed jointly and severally by the Members of the European Union, occupied the communication space. Frau Angela Merkel, supported by the new ECB President, Signor Mario Draghi, refused the French proposal of Monsieur Nicolas Sarkozy to ask the ECB to purchase more sovereign bonds from the ailing Eurozone countries. They were right. The ECB must remain the Central Bank of the Eurozone, and the other Funds will take care of the sovereign debt.
What kind of actions are we talking about?
- On October 26-27, an agreement was reached with the banks on a 50% decrease of their holdings of Greek sovereign debt. Other measures were increasing the European Fund for Financial Stability from EUR 440 billion to 1,000 billion. That agreement has not yet been implemented. It is far from perfect, but Europe must demonstrate that it can put its money where its mouth is.
- While there have been lots of talks about the current situation of Italy, one thing is certain: its sovereign bonds maturing in 2012 amount to the equivalent of the aggregate Greek debt. Rather than leaving the markets increase the rate of interest on each refinancing, Signor Mario Monti would be well advised to preempt this potentially dangerous situation by inviting the bondholders (public and private) to reschedule the 2012 maturity of Italy.
- Use the right the Eurozone has to disapprove 2012 budgets that would not be stringent enough to contain the evolution of sovereign debt. It is critical that this process be implemented as the first step towards the inevitable fiscal consolidation. Europe absolutely needs fiscal discipline to reassure its lenders.
The combination of these actions should have immediate results on the indebtedness and the refinancing needs of some of the most fragile economies. What markets expect is to see, are concrete improvements to the situation. Political declarations have become useless.
Every summit was followed by some hope, while the markets realized that they were not realistically implementable. Now is the true test of statesmanship and cohesion. There is little hope if it is not successfully passed.