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: Office / Sales Manager

£22000 - £32000 per annum: Recruitment Genius: Established and expanding South...

Recruitment Genius: Administrative Assistant / Order Fulfilment

£14000 per annum: Recruitment Genius: An exciting opportunity to join a thrivi...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: Trainee Recruitment Consulta...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + Uncapped OTE: SThree: Trainee Recruitment Consulta...

Day In a Page

Read Next
 

Syria's Kurds have little choice but to flee amid the desolution, ruins and danger they face

Patrick Cockburn
A bartender serves two Mojito cocktails  

For the twenty-somethings of today, growing up is hard to do

Simon Kelner
Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement