Europe debt crisis: EU moves too little, too late?
Greece's new leader today submitted a draft budget while Italy has presented an austerity program. But investors are skittish as EU debate rages over how best to address the Europe debt crisis.
Europe seemed to make the right moves towards solving the eurozone’s sovereign debt crisis this week, and with the political stalemate in Greece and Italy finally broken, Europe’s leaders were hoping for a bit of breathing space.Skip to next paragraph
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Yet markets instead have responded negatively as an increasingly fierce EU debate over the role of the European Central Bank (ECB) undermines investors' trust that the eurozone will recover. Many experts believe that the attempts of Europe’s southern countries to reform are coming too late.
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“All forecasts indicate that European economies are either already in recession or only a step away,” says Sebastian Dullien, an economist at Berlin’s HTW University. “Austerity will put additional pressure on these economies. They will need help from outside to sort their debts and get back to growth.”
Greek, Italian moves fail to soothe markets
Greece’s new prime minister Lucas Papademos, who heads an emergency cabinet that is supposed to keep the country from defaulting, won a vote of confidence this week with a comfortable majority. That victory allows him to now embark on reforms Greece needs to implement before it gets fresh money from the EU and the International Monetary Fund. Today Greece submitted a draft budget ahead of meetings today and tomorrow with the EU, the IMF, and the ECB.
In Rome, Italy’s new prime minister Mario Monti, the ex-central banker who succeeded Silvio Berlusconi, presented a cabinet consisting exclusively of technocrats instead of career politicians. The cabinet also presented an austerity program that, Mr. Monti said, was vital for the survival of the eurozone.
“We must make sure Italy is no longer perceived as Europe’s weakest link,” he said.
But the markets didn’t buy it. Sovereign bond yields for Italy remained high, while yields for Spanish and French 10-year bonds rose – close to the critical 7 percent mark in Spain. At that level, borrowing gets prohibitively expensive. When countries like Ireland and Portugal crossed that threshold, they were forced to ask for help from the EU.