EU package cures symptoms not illness

As the world anxiously waited, debt-ridden Europe managed to finalize a "comprehensive" rescue plan at a leaders summit on Wednesday, in an attempt to restore confidence in the euro and put Europe's banking sector on a sound footing.

Addressing the Bundestag before the summit, German leader Angela Merkel said Europe was facing its toughest challenge since the end of the Second World War, saying if the euro fails, Europe fails.

However, the deal achieved on Wednesday night is just a cure for the symptoms rather than an effective treatment for the structural problems that lie at the root of the crisis.

According to the statement by the 27 leaders, they reached an agreement on the short-term recapitalization of European banks to create a temporary buffer allowing the banking system to withstand shocks in a reliable manner.

The banks must raise more than 100 billion euros ($141.8 billion) in new capital to shield them against possible losses to indebted countries. This capital to be raised from private sources, and only if that proves impossible can they seek support from national governments. If the latter support is not available without creating systemic risks for the eurozone, the European Financial Stability Facility (EFSF) should provide the loans for recapitalization.

In an effort to prevent the crisis from spreading beyond Greece, Ireland and Portugal, which are now receiving bailout loans, the leaders agreed the firepower of the EFSF will be raised from the current 440 billion euros to one trillion euros, Greece has already been given 110 billion euros to help it get through the crisis - and has now been earmarked to receive another 109 billion euros.

Banks holding Greek debt are to accept a 50 percent loss.

Meanwhile, Greece and Italy will have to speed up economic and social reform at home, which will not be popular with the public. But Europeans will have to adjust to the reality of the crisis and bite the bullet of austerity measures.

All these numbers are striking and the markets have responded well. However, they are only targets and there are many important details that still need to be hammered out.

The leaders must pay attention to long-term structural reform and measures to stop deficit-running policies, beginning with the tougher controls on the budgets of member countries, integration of taxation, and a new framework for running the eurozone, which they said were on the cards.

While these verbal assurances are all very well, it is time to act and translate decisions into action.

It is understandable that it is difficult to achieve consensus among 27 countries. But the crisis is growing and the state of the global economy demands swiftness, determination and courage if it is to be brought under control.

There is certainly no lack of summits, this was the second gathering of 27 European leaders in four days, and the G20 leaders will meet in November, but talk is useless if it does not result in concrete actions.

The author is China Daily Brussels chief correspondent and can be reached at fujing@chinadaily.com.cn.

(China Daily 10/29/2011 page5)