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People's Daily Online>>Opinion

Europe should make greater efforts to save itself

By Qin Hong (People's Daily Overseas Edition)

13:30, December 22, 2011

Edited and translated by People's Daily Online

Although the EU summit, which was widely described as the “last chance to save the euro,” made breakthroughs last week in amending EU treaties, introducing an automatic penalty mechanism, and raising funds to pay off debt, the market reaction was relatively lukewarm, compared to previous bailout measures. It seems that the market is still suffering from “aesthetic fatigue.”

In the short term, Europe needs to set aside sufficient funds to cope with a peak of debt maturity early next year, rising government bond yields, and high risk of further sovereign-credit downgrades across the continent.

Europe’s governments have to repay more than 1.1 trillion euros of debt in 2012. Peripheral euro-zone countries have about 86 billion euros of bonds and bills maturing in the first quarter. The half-empty 440-billion-euro European Financial Stability Facility and the 500-billion-euro European Stability Mechanism set to be launched in July next year are obviously unable to shoulder the heavy debt burden on their own.

Objectively speaking, Europe is rich enough to repay its debt. Italy’s private wealth is four times the size of its public debt. European governments are worried about a “Europe buy-out” by foreign capital, and are unwilling to issue Eurobonds or to let the European Central Bank play its role as a lender of last resort. This will worsen the situation and further damage market confidence.

In foreseeable future, some loopholes still exist, although the summit has made some amendment, strengthened financial discipline and established an automatic penalty mechanism. Power of decision of “Golden Rules” still belongs to each country. If rejected by most countries, the automatic penalty mechanism may still lose effectiveness.

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