Posted by: Linda Yueh on December 9, 2011
The euro-zone leaders adopted a pact to move toward fiscal union and stepped up stabilization measures to face the immediate crisis. This is progress, but as Thomas Mayer, chief economist at Deutsche Bank, told me this morning:
The leaders have now defined the end point they want to reach in terms of fiscal governance, but it’s a long way to go there.
We’ll probably see more near-term tension and that will probably then trigger a more hands-on intervention by the ECB.
The stabilization measures still come back to the European Central Bank, the one institution with the resources to provide the liquidity backstop to stem the crisis. Let’s take the 200 billion euros that could be given to the International Monetary Fund from Europe’s central banks: 150 billion euros from the euro zone and the rest from non-euro members. German Chancellor Angela Merkel says these could be bilateral credit lines.
The money would presumably come from the ECB as its balance sheet comprises the 17 euro-area central banks. ECB President Mario Draghi said yesterday at the ECB press conference that it’s complex to lend to the IMF and a bilateral loan plan may not fit with the spirit of the European Union treaty that prevents monetary financing of governments.
One potential loophole: If the money goes into the IMF’s general resources, then it could fund any country and not specifically Italy and Spain. IMF Managing Director Christine Lagarde says the details will be worked out in the next 10 days.
Plus, the use of the term “fiscal compact” in the EU’s summit statement adopts Draghi’s language where he called for precisely such a compact for the euro zone.
And he welcomed the result: “It’s a very good outcome for euro-area members, and it’s going to be the basis for a good fiscal compact and more disciplined economic policy in euro-area countries.”
The euro-zone leaders may well be hoping that this means he is more willing to step up the ECB’s role.
(Photo by Ralph Orlowski/Getty Images)