The European Commission has announced a five-part “roadmap” to resolve the EU’s sovereign debt crisis and pull the eurozone out of its economic slump.
The plan, announced Wednesday, calls for immediate action on Greece, increasing the capital thresholds of banks, speeding up the adoption of crisis response mechanisms and enhancing economic integration between member states.
"Reactive and piecemeal responses to different aspects of the crisis are no longer sufficient. We now need to get ahead of the curve. Confidence can be restored through an immediate deployment of all the elements needed to solve the crisis,” EC president Jose Manuel Barroso said in a statement accompanying the launch of the plan.
“Only in this way we will be able to convince our citizens, our global partners and the markets that we have the solutions that measure up to the challenges all economies are facing. We need to reach agreement at the European Council on the 23rd October.”
The roadmap calls for the sixth €8 billion tranche of aid to Greece to be disbursed -- the payment, part of the €110 billion package agreed with the country in 2009, has been delayed by the patchy implementation of the austerity measures and reforms that were conditions of the bailout -- and says that a second structural adjustment programme needs to be agreed.
Secondly, the EC says that the eurozone stability mechanisms need to be fully implemented, and that the European Central Bank needs to be prepared to provide liquidity to the financial system.
One of the main tenets of the eurozone’s crisis response has been the European Financial Stability Facility, a proposed €440 billion fund that, should it be fully ratified by member states, would be able to recapitalise struggling banks and buy sovereign issues by troubled countries. However, the ratification process hit a snag yesterday when the government of Slovakia, one of the last countries to vote on the process, failed to pass the EFSF reform, leading to the government to collapse.
The creation of the EU’s successor to the temporary EFSF - the European Stability Mechanism (ESM) - should be brought forward to mid 2012, according to the new roadmap.
The European banking sector needs to be held to higher standards, according to the commission, and should increase their capital buffers. If they are unable to do so, the EFSF should step in, according to the roadmap.
The market was shaken last week by the near-collapse of the Franco-Belgian bank Dexia, which passed all of the EU’s banking stress tests and was considered relatively secure. A reassessment of the real dangers of its exposure to the eurozone periphery saw its share price slide, until trading in the stocks were suspended last Thursday. The bank’s Belgian arm announced on Monday that it was to be nationalised.
The roadmap’s final two prescriptions call for faster adoption of pro-growth policies across the EU, as well as measures to more closely integrate the economies of the union. The lack of coordinated economic and fiscal policy has been a major cause for concern during a crisis that has shown the inevitable stresses of running a group of economies with various growth rates and economic drivers under a single currency and monetary policy.
The main European indexes rose following the announcement.Suggest a correction