The eurozone is in danger of flunking its own stress test. Six weeks ago, the bloc’s leaders appeared ready to reach agreement on a way to address its weaker members’ debt problems. Options included making the European financial stability facility a more flexible policy instrument (partly by raising its lending capacity to its nominal €440bn), and putting formal constraints on members’ borrowing and spending. Investors were ready to be convinced; bond markets returned to something approaching normal.
So much for “grand bargains”. Through a mix of internal bickering, their continued misunderstanding of the nature of their problems and a misreading of the markets, the eurozone’s leaders are poised to disappoint. This policy may be tweaked, or that measure honed, at a summit later this month. But a comprehensive strategy for the bloc’s governance seems to have run into the sand.
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