The financial markets have enthusiastically welcomed the agreements reached in Brussels on Thursday, and understandably so – not only for their immediate content but also for what they signal about how far European leaders are willing to go to finally catch up with the realities of the region’s crisis.
But the feel good factor will only last if this is followed quickly by some important steps. Firstly, there is a long list of details that must be specified over the next few weeks to put into practice what was agreed to in Brussels. Second, and critical for long-term sustainability, Europe desperately needs an effective plan to boost employment and promote inclusive economic growth. Without this, it will be virtually impossible to stabilise the region’s sovereign debt markets, and counter fragilities in its banking system. Its politicians also need to decide how they will strengthen the institutional underpinnings of the eurozone. Can they deliver a fiscal union with much greater political integration? Or will they be forced to settle for a eurozone consisting of a smaller number of countries with similar initial conditions?
There is still a lot to do. While policymakers should be commended for the important steps that they took this week, inevitably they will soon find themselves engaged in yet another set of difficult, long, and uncertain negotiations.