Active Stocks
Thu Mar 28 2024 15:59:33
  1. Tata Steel share price
  2. 155.90 2.00%
  1. ICICI Bank share price
  2. 1,095.75 1.08%
  1. HDFC Bank share price
  2. 1,448.20 0.52%
  1. ITC share price
  2. 428.55 0.13%
  1. Power Grid Corporation Of India share price
  2. 277.05 2.21%
Business News/ Opinion / Online-views/  Views | Slow, tortuous and tricky
BackBack

Views | Slow, tortuous and tricky

Views | Slow, tortuous and tricky

Premium


The initial reaction of the markets to the euro summit has been cautiously positive. Stocks in Europe moved up, yields on Italian and Spanish bonds fell a bit, while the euro was up a tad against the dollar. Investors, used to seeing summits where little was achieved, were relieved that at least some progress has been made to curb fiscal profligacy. There is also the little fudge of lending €200 billion to the International Monetary Fund, so that it can lend this back to cash-strapped European governments. That neatly sidesteps the prospect of convincing the German electorate to help its struggling cousins in Italy or Spain, although its legality could be questioned.

But these steps are not enough to ease the uncertainty. The concerns about the recapitalization needs of European banks remain and nothing has been said about the need for the European Central Bank (ECB) to buy the sovereign debt of countries in difficulties. Indeed, ECB president Mario Draghi explicitly denied any such move a day before the summit.

A large part of the fiscal plan is merely a rehash of the earlier “Stability and Growth Pact", which proved to be unenforceable. No attempt has been made to boost the bailout fund, which may not be large enough. And with Britain opting to stay out of any agreement, the legal repercussions of the “fiscal compact" are unclear. The road ahead is going to be slow, tortuous and tricky.

The biggest failure of European leaders, however, is that they are contemplating not a fiscal union, but an austerity programme. At a time when the euro zone is slipping into a recession, such a plan will only add to the distress in the euro periphery. In short, while some of ECB’s measures may ease liquidity pressures and help the banks, the summit has done little to reduce the fundamental problems that afflict the euro zone. Much will now depend on whether Standard and Poor’s carries out its threat of a mass downgrade.

Will the European rescue plan work? Tell us at views@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 11 Dec 2011, 09:42 PM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App