At the Euro Summit, Prime Minister James Cameron’s veto of the Brussels pact cast Britain to the margins of the EU, while the bloc’s other members pledged to press on with closer economic and fiscal integration.
Taken into consideration the multitude of crises in the Eurozone, what did the Summit actually achieve?More of the same
At surface, the crisis stems from the failure of the Euro countries to abide by the Stability and Growth Pact (1997), which deemed that an annual budget deficit should not be higher than 3% of GDP and that national debt should be lower than 60% of GDP.
If these criteria would be applied today, no Euro country could be a member of the Eurozone.
The new treaty restated the same objectives, but with sanctions indicating that “now we really mean it.” – Time will tell.
Fiscal policy: 1930s déjà vu
Until recently, most European economies – from Cameron’s conservatives in the UK to Chancellor Angela Merkel’s CDU in Germany – have engaged in front-load austerity measures and promises of long-term fiscal support.
It is as if the 1930s deflation and mass unemployment had never occurred.
In Brussels, they pledged “more of the same,” which will further reduce growth in the Eurozone.
Rate cuts, finally
Under Jean-Claude Trichet, the European Central Bank hiked rates when it should have cut them.
Under new chief Mario Draghi, the ECB policy is being reversed, belatedly.
But there is no longer much room to maneuver. And as Fed’s efforts suggest, monetary policy alone cannot reverse economic fortunes.