Cause and Effect in European Politics and Law

Practical magic in the euro area

Ralitsa Kovacheva, April 27, 2011

As it often happens in the past year, every attempt by the EU to counter market pressure on the euro area ends with a new outburst of panic and increased spreads of the most endangered peripheral economies. The same scenario we have observed in Greece and Ireland, occurred for a third time in Portugal - the news of the rescue loan has been delayed for too long, and when it still came up, too many unknowns prevented it to inject the right dose of sedative to the financial markets.

One of these unknowns is the political uncertainty in Portugal in anticipation of the upcoming early elections. Second is the threat, coming from Finland, to block the Portuguese loan. Third is the internal opposition within the coalition of German Chancellor Angela Merkel against the European Stability Mechanism in general. Recalling these uncertainties, The Financial Times analyst Wolfgang Munchau commented that the biggest problem of the euro area is the "quack solutions", which were frequently used, but would not save it. He gave the example of the calls for restructuring of the Greek debt, commenting that currently this was completely unnecessary and would not save money neither to the German nor the Finnish taxpayers, as some politicians promised.

However, Mr Münchau's opinion is quite isolated, against the dominance of the analysts, economists and politicians arguing that the restructuring of the Greek debt is inevitable. And that the same applies to the Irish and Portuguese debts too, perhaps to a lesser extent. This opinion is also shared by MEP Jean-Paul Gauzes (EPP, France). According to him, the restructuring of some debts is inevitable, in order to prevent greater damages. For more comments on the rescue of Portugal, and on whether Spain will be able to cope alone with its financial difficulties, watch the reportage made by our colleagues from the EuroparlTV.