German chancellor Angela Merkel and France’s president Nicolas Sarkozy have promised to produce a “comprehensive strategy” to tackle the European debt crisis by the end of the month. It will include measures to recapitalise banks, none of which have been finalised yet. The International Monetary Fund (IMF) estimates that Europe’s banks may need a capital injection of up to €200bn to cope with losses on peripheral debt. The institutions monitoring Greece’s compliance with its austerity package – the EU, the European Central Bank and the IMF – noted that Athens was falling behind on structural reforms, but will still soon receive another €8bn to stave off bankruptcy.
But the push to ratify a July agreement on increasing the size of Europe’s rescue fund, the European Financial Stability Facility (EFSF), suffered a setback when the parliament in Slovakia, the last eurozone member to ratify the deal, blocked approval. Another vote was due to take place by the end of this week.
What the commentators said
“If Angela Merkel and Nicolas Sarkozy had been captaining the Titanic when the iceberg was spotted, they would probably have issued a statement resolving to avoid it,” said Economist.com. Given that the July grand plan “didn’t survive 24 hours of market scrutiny”, and there are “plenty of pitfalls” ahead, agreed Simon Nixon in The Wall Street Journal, it’s no wonder scepticism is rife. Slovakia’s refusal on Tuesday to ratify the expansion of the EFSF to €440bn can be seen as a “sovereign hissy fit”, said Fxpro.com. It is expected to pass with the votes of the opposition. But this rebellion just shows that bail-outs are reaching their political limit, and any moves towards further integration or joint responsibility for sovereign debt could trigger a “devastating” political backlash, said Allister Heath in City AM.
“So far, nobody has transferred even a single euro cent across their borders,” added Wolfgang Munchau on FT.com. “Just imagine the politics” once greatly increased national commitments to the EFSF – being mooted to help shore up Italy and Spain, or recapitalise the banks – fall due. Any significant change to the structure of the EFSF would probably be subject to a vote in various national parliaments. In short, if Europe really does produce a “big bazooka” to fix the sovereign and banking crisis at the end of the month, it will be “little short of a miracle”, said Nixon. Don’t hold your breath, said Gary Jenkins of Evolution Securities. Any comprehensive plan “that circles the wagons around the sovereigns and the banks” will probably only be agreed “at one minute to midnight when the alternative is that the market is about to explode on Monday morning”.