Sunday 23 July 2017

An inadequate arsenal for a currency in grave danger

Poorly thought through and nearly impossible to deliver, Friday's agreement sounds good but in fact won't help much, says Colm McCarthy

Colm McCarthy

Colm McCarthy

To have split the European Union, isolating one of its largest members, as the price for a decisive deal to end the eurozone financial crisis would have been a tough political choice, but an understandable one. The French and German leaders have created instead a damaging rift with Britain without delivering any worthwhile advance at all in their slow-motion response to the crisis.

Friday's agreement in Brussels adds little to the inadequate arsenal available to defend the eurozone, which remains vulnerable to weakness in sovereign bond markets and to inadequately capitalised banks. Proposals to re-fashion the eurozone can be judged against one simple criterion. Would the present crisis have been avoided, or at least substantially moderated and easier to resolve, had the new measures been in place since the euro's launch in 1999? On this basis, Friday's measures came up short once again and will be tested soon in the markets.

The self-serving Franco-German narrative has remained unaltered as the crisis intensified over the last three years. The monetary union was derailed, we are to believe, by a few small members pursuing irresponsible budgetary policies. Weaknesses in the design and management of the common currency are not acknowledged and strict adherence to fiscal rules is promoted as the principal remedy. Solvency problems for banks and sovereigns are denied or downplayed and grudging liquidity fixes devised at snail's pace. Friday produced yet another instalment in this tiresome evasion.

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