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Daily View: Is the eurozone crisis solvable?

Clare Spencer | 10:40 UK time, Wednesday, 26 October 2011

Angela Merkel and Nicolas Sarkozy


Ahead of the EU Brussels summit to come up with a eurozone plan commentators try to identify the cause of the crisis and if there is a solution.

The New York Times' Paul Krugman spots a flaw in the solutions offered so far:

"All the various proposals for creating such a fund ultimately require backing from major European governments, whose promises to investors must be credible for the plan to work. Yet Italy is one of those major governments; it can't achieve a rescue by lending money to itself. And France, the euro area's second-biggest economy, has been looking shaky lately, raising fears that creation of a large rescue fund, by in effect adding to French debt, could simply have the effect of adding France to the list of crisis countries."

Hamish McRae says in the Independent that main conflict is over how much of the debts governments will take on and how much they will expect bankers to take:

"The dissonance is that the political pressure is on governments to impose as much as possible of the burden on private holders of Greek debt, the 'make the banks pay for their stupidity' argument. The problem is that the greater the loss the greater the premium those holders will impose when making new loans, not just to Greece but to any even slightly suspect eurozone country. Either way, the taxpayers pay more."

John Kay says in the Financial Times that today's summit is a red herring as the solution isn't to be found in Europe:

"The eurozone's difficulties result not from the absence of strong central institutions but the absence of strong local institutions. A miscellany of domestic problems - rampant property speculation in Ireland and Spain, hopeless governance in Italy, lack of economic development in Portugal, Greece's bloated public sector - have become problems for the EU as a whole. The solutions to these problems in every case can only be found locally.
"But many interests converge in supporting the demand for collective action. An elite in Brussels and some other capitals takes the view that whatever the problem, the answer is more Europe. Another reason is the pleasure European leaders take in holding international crisis meetings. Nicolas Sarkozy will not forgo any opportunity for public grandstanding, while the representatives of smaller European states exploit the crisis to acquire a profile they would not otherwise achieve or, in most cases, deserve."

Jeremy Warner says in the Telegraph that whatever leaders come up with, it will create as many problems as it solves:

"What is plain is that the debt crisis is spiralling out of control and may already have moved beyond the capacity of Europe's political elite to fix it by ramming home fiscal and economic union...

"Saving the world from immediate disaster has to be the priority for now, but there will come a time in this unfolding crisis when more radical thinking is called for. The single currency cannot survive on the present policy mix. Britain must prepare to switch tack."


Finally, in Der Spiegel, Carsten Volkery reminds us that one vital party is missing from the summit - the banks:

"It's questionable whether an agreement can be found by Wednesday. Nor can the banks be forced into a deal, given that the ratings agencies have said they would view that as tantamount to a Greek insolvency, with incalculable consequences. If the banks don't play along, though, the entire rescue package could be imperilled."

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