With EU plan set: Let the doubting now begin
BERLIN -- Although European leaders seemed pleased with themselves after reaching a deal to combat the spiraling eurozone debt crisis, the question the morning after was: Is it enough?
No, analysts say.
"It will make no big difference. It will not solve the problem we are facing," said Matthias Kullas, an economist at the Center for European Policy in Freiburg, Germany. "It will buy us more time, but it's the opposite (of a solution): The reduction of the debt in Greece will make it easier for them not to implement the necessary reforms because there is less pressure now."
European leaders decided on a three-pronged plan to address the continent's government debt crisis: They won an agreement with bankers to shave Greek debt by 50%; boosted the potential effect of the $610 billion bailout fund known as the European Financial Stability Facility; and required banks to boost their assets and agreed to help them do so.
Leaders also agreed to a second 184 billion euro bailout for Greece to be finalized later this year.
French President Nicolas Sarkozy said that the financial package was a complete response to Greece's massive budget deficit, which has threatened to spread to other nations due to the number of banks that extended credit to the country.
But the French agreed that it was "an error" to let Greece join the monetary union in 2001.
"Its economy was not ready to take on an integration into the eurozone," Sarkozy said, but went on to say that the financial deal "will be a source of huge relief worldwide."
Analysts said no one can say for sure if the package will work.
"It is clearly a step in the right direction," said ING economist Carsten Brzeski. "But we still have a couple — many too many — unanswered questions, especially on the (bailout fund). It was clearly not the final summit, the final word, the super-duper master plan that Sarkozy promised us."
Some analysts gave top marks for the measures to improve the cash positions of banks as well getting banks to forgive 50% of Greek debt. They also applauded the second bailout package for Greece.
But many said that the stated aim of bringing Greek debt, currently at 160% of GDP, down to 120%, might not be possible. Italy is already at that lower level and it is not a good position to be in,Brzeski said.
"Sarkozy was very fast last night in saying that Europe would now have a bazooka of $1.4 trillion," he said. "We don't have a bazooka, we have a commitment. We have some tools that have never been tested in practice and there are real uncertainties such as if foreign investors will line up to participate."
A tough pill for Greece to swallow
The measures were a source of relief but also humiliating for Greeks, who analysts say lost sovereignty in the deal.
Greece will come under much closer scrutiny and a "permanent system of supervision" than in the past year in which monitoring missions by the Troika visited every three months to assess fiscal and monetary policy decisions, German Chancellor Angela Merkel said.
Now, a team of advisers will be based in Greece, according to the joint statement issued in Brussels after the summit. This was a measure that Germany insisted on, as a condition of the rescue.
"We can claim that a new day has come for Greece and also for Europe," Greek Prime Minister George Papandreou said. "A burden from the past has gone; we can start a new era of development."
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