At first I was surprised that no one had commented on this article, but then I read past the headline. While the news appears promising, Europe did not actually take concrete steps to end its debt crisis.
When you cannot pass credible reforms, the next best thing to do is baffle everyone with bs. This is the WSJ’s characterization of the agreement:
A key element of plans to enforce economic-policy discipline in the euro zone fell into place Wednesday after a year of negotiations between European Parliament lawmakers and governments.
If someone keeps repeating the same nonsense over and over again, eventually someone will believe it. This is not what happened. The agreement is watered down from its original form and will do nothing to ensure budgetary discipline among Eurozone members.
What eurozone needed was a way to pool their debts and enforce strict limits on budgetary excess so that the divergence between the core and the periphery would narrow. What they agreed to is window dressing. Just an agreement for the sake of announcing an agreement.
The Eurozone countries have agreed to submit their budgets for the next fiscal year to the the European Commission by October 15. If the commission is not satisfied with a country’s budget, it may argue publicly for changes and demand increased reporting of the nation’s financial, economic and fiscal statistics.
Oooh! Public arguments??!!! France and Spain are sooo scared! They will surely cut their budgets and reform their economies now.
The truth is that there is no enforcement mechanism and no penalties for countries running large deficits. Most importantly, there is no common debt pool. As such, countries like Germany will continue to borrow money at 1.6% while Spain is forced to pay 5.1%. This creates a tighter money policy in the countries that require economic growth fueling the core and periphery divide.
As long as the euro remains a false currency union, this divergence will continue to exist and so will the threat to the euro.