Leading article: Europe's leaders are still not doing enough

Share
Related Topics

The eurozone's leaders have finally woken up to the fact that, in the Greek debt crisis, they have an existential challenge on their hands. Yet for all the drama of this week's plea by Angela Merkel for the German parliament to sanction the Greek financial rescue package and yesterday's vote in Athens on a new round of cuts, the signs are that Europe's leaders are still not on top of the situation.

The €110bn IMF-eurozone funding package to remove Greece from the international capital markets for three years is better than nothing – but it is still not enough. It is becoming increasingly clear that Greece will need some form of debt restructuring to ease the burden of its borrowings.

Spending cuts from Athens are needed to show that Greece is making some effort to put its fiscal house in order in return for its rescue. But these cuts will inevitably plunge the Greek economy deep into recession. This will mean lower tax revenues. And depressed revenues mean it will be harder for Greece to bring down its deficit. That means Greece will have little hope of stabilising its vast stock of debt. Greece needs cheap credit from neighbouring governments if it is to stay solvent. But it also needs some of its mountain of debt to be written off. Rather than crossing their fingers and hoping that this week's rescue will be enough to do the job, policy-makers in the eurozone and the International Monetary Fund should be engineering a debt restructuring package for Greece. They should also be preparing for the inevitable fallout in the credit markets that would result from such a drastic move.

One aspect of such a package would have to be a recapitalisation of those French and German banks which have invested heavily in Greek bonds and would register billions of euros of losses if Athens forced its creditors to accept less than they are owed. It will also probably necessitate still greater pledges of support from fiscally robust eurozone nations for those governments such as Spain and Portugal which are under pressure in the bond markets because investors fear they could be next to follow Athens into meltdown.

German taxpayers, who are already angry at the support they are being asked to provide Greece, are likely to be hugely resistant to such a package. Their outrage might be understandable, but the choice is now between a massive bailout and the total break-up of the eurozone.

If the eurozone does survive, it is going to need fundamental structural reform. First there will need to be tighter controls on sovereign borrowing to stop states such as Greece running irresponsible deficits. Second, there will need to be greater scrutiny of European banks. The role of these institutions in facilitating Greece's debt meltdown is one of the great scandals behind this crisis. Third, there needs to be clear institutional arrangements for when eurozone nations get into financial trouble so that investors will not go into panic as they have over Greece. Finally, there needs to be efforts to iron out the internal economic imbalances in the eurozone whereby southern nations run vast trade deficits, which pushes them into debt, while Germany accumulates large trade surpluses. Britain has a clear interest in seeing this mess cleared up. We might not be in the eurozone, but our banks hold considerable sums of vulnerable eurozone debt. And Europe is by far our largest trading partner. We need to be part of the effort to rebuild.

Yet, before any of that, this present crisis needs to be resolved. Otherwise there could be no eurozone left to reform. Europe's leaders need to act decisively and boldly in the coming weeks. Otherwise, the markets will resolve the crisis for them; and the results will not be pretty.

React Now

Latest stories from i100
SPONSORED FEATURES
iJobs Job Widget
iJobs General

Recruitment Genius: Interactive / Mobile Developer

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: PHP Developer - Midweight

£40000 - £45000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: Junior Front End Developer

£20000 - £30000 per annum: Recruitment Genius: This digital production agency ...

Recruitment Genius: Front End Developer - Midweight / Senior

£35000 - £40000 per annum: Recruitment Genius: This digital production agency ...

Day In a Page

Read Next
The UCAS clearing house call centre in Cheltenham, England  

Ucas should share its data on students from poor backgrounds so we can get a clearer picture of social mobility

Conor Ryan
A study of 16 young women performing light office work showed that they were at risk of being over-chilled by air conditioning in summer  

It's not just air conditioning that's guilty of camouflage sexism

Mollie Goodfellow
Giants Club: After wholesale butchery of Idi Amin's regime, Uganda’s giants flourish once again

Uganda's giants are flourishing once again

After the wholesale butchery of Idi Amin's regime, elephant populations are finally recovering
The London: After 350 years, the riddle of Britain's exploding fleet is finally solved

After 350 years, the riddle of Britain's exploding fleet is finally solved

Archaeologists will recover a crucial item from the wreck of the London which could help shed more light on what happened in the vessel's final seconds
Airbus has patented a jet that could fly from London to New York in one hour

Airbus has patented a jet that could fly from London to New York in one hour

The invention involves turbojets and ramjets - a type of jet engine - and a rocket motor
Tate Sensorium: New exhibition at Tate Britain invites art lovers to taste, smell and hear art

Tate Sensorium

New exhibition at Tate Britain invites art lovers to taste, smell and hear art
10 best sun creams for kids

10 best sun creams for kids

Protect delicate and sensitive skin with products specially formulated for little ones
Ashes 2015: Nice guy Steven Finn is making up for lost time – and quickly

Nice guy Finn is making up for lost time – and quickly

He was man-of-the-match in the third Test following his recall to the England side
Ashes 2015: Remember Ashton Agar? The No 11 that nearly toppled England

Remember Ashton Agar?

The No 11 that nearly toppled England
Turkey-Kurdish conflict: Obama's deal with Ankara is a betrayal of Syrian Kurds and may not even weaken Isis

US betrayal of old ally brings limited reward

Since the accord, the Turks have only waged war on Kurds while no US bomber has used Incirlik airbase, says Patrick Cockburn
VIPs gather for opening of second Suez Canal - but doubts linger over security

'A gift from Egypt to the rest of the world'

VIPs gather for opening of second Suez Canal - but is it really needed?
Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Jeremy Corbyn dresses abysmally. That's a great thing because it's genuine

Fashion editor, Alexander Fury, applauds a man who clearly has more important things on his mind
The male menopause and intimations of mortality

Aches, pains and an inkling of mortality

So the male menopause is real, they say, but what would the Victorians, 'old' at 30, think of that, asks DJ Taylor
Man Booker Prize 2015: Anna Smaill - How can I possibly be on the list with these writers I have idolised?

'How can I possibly be on the list with these writers I have idolised?'

Man Booker Prize nominee Anna Smaill on the rise of Kiwi lit
Bettany Hughes interview: The historian on how Socrates would have solved Greece's problems

Bettany Hughes interview

The historian on how Socrates would have solved Greece's problems
Art of the state: Pyongyang propaganda posters to be exhibited in China

Art of the state

Pyongyang propaganda posters to be exhibited in China
Mildreds and Vanilla Black have given vegetarian food a makeover in new cookbooks

Vegetarian food gets a makeover

Long-time vegetarian Holly Williams tries to recreate some of the inventive recipes in Mildreds and Vanilla Black's new cookbooks