Daily Archives: July 22, 2011

Europe may have taken an historic step in its meeting on Thursday – it seems, for once, to have done more than “just kick the can down the road”. First, its leaders recognised that it is not just Greece that faces a problem; it is a European problem, which requires a European solution.

Second, the leaders recognised that Greece’s problems require a focus on debt sustainability – lowering the debt burden and increasing gross domestic product, and Europe is doing something about both.

The European Union has once again reiterated its resolve to a quick return to fiscal rectitude (at least for those countries not in crisis). Europe’s recovery, however, is still frail and excessively quick cutbacks will slow growth, and even risks a double-dip recession. Lower economic growth will be bad even from a narrow view of deficits and debt.  Read more

European leaders took a big and important step towards dealing properly with the eurozone debt crisis at their summit on Thursday. This required courageous compromises on the part of many, most importantly Germany and the European Central Bank. But further design enhancements and skilful execution will be required if yesterday’s decisions are to translate into the durable restoration of growth and financial stability to the region’s troubled peripheral economies.

Still, the agreement constitutes a major step for leaders that, for almost two years, were essentially in denial. Having persisted too long with a liquidity cure for a solvency problem, they are now taking a major step towards deploying better instruments for the challenge at hand.

History will judge whether this is the beginning of the end for Europe’s painful debt crisis.
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