Update on eurozone negotiations
The Irish Times is a good source for an alternative perspective on eurozone developments. They understand enough economics to get some key ideas right, yet they don’t simply adopt a “major country” perspective. (I find German coverage especially difficult to parse.) They are more explicit and less guarded than the FT, not always a virtue but worth trying on for size. Anyway, their latest report from the front line is scary. It starts with:
European Union leaders piled pressure on Italy today to hasten economic reforms to avoid a Greece-style meltdown as they began a summit to rescue the euro zone from the debt crisis.
I’m probably all for the reforms under discussion, but in this context they take far too long and along the way there is not enough political commitment. That this is the lead item is a sign that a) there are no really good intermediate measures under discussion, and b) the Italians need to be forced to do the right thing. Neither is good news. I’ve already discussed how and why Italy, with its numerous and decentralized distortions, does not have easy access to a “big bang” solution. And this:
Diplomats said they wanted to maximise pressure on Rome to implement structural labour market and pension reforms to boost Italy’s economic growth potential and reassure investors worried about its huge debt ratio, second only to Greece’s.
After the TGS experience of Japan, it needs to be recognized that perhaps a major country simply won’t grow much for twenty years or more. Yikes, and wake up! When interpreting this sentence, beware of rhetorical political posturing vis-a-vis Germany, but this too was hardly encouraging:
“Between now and Wednesday a solution must be found, a structural solution, an ambitious solution, a definitive solution,” Mr Sarkozy said. “There’s no other choice.”
A proposal for bank recapitalization, plus a further tweak on the ever-worsening Greece deal, and a lot of promises for Italian reforms, doesn’t even represent kicking the can down the road. It’s more like smashing your foot on the can.
Addendum: I agree fully with this assessment.