On the back of rising concern the deal might unravel or become watered down, investor faith began to fade Wednesday, with stock markets falling sharply in London, Frankfurt, New York and, in early Thursday trading, Tokyo. The euro slipped to a 12-month low against the dollar, falling below $1.30.
The slides occurred amid fresh worries over whether some nations would ultimately agree to cede more national sovereignty to E.U. institutions, effectively forfeiting a measure of control over something long considered sacred: national budgets.
The growing jitters over the plan only days after its drafting highlighted the cumbersome strictures of the European Union. With a web of conflicting national interests, the region has thus far been unable to enact a rapid plan for crisis management. So the question remains: Can European leaders ink a blueprint to win back investor confidence before the region’s woes spiral and touch off another global financial crisis?
In addition to Britain, which opted out of the accord, the Czech Republic and Sweden — two countries that almost rejected a deal Friday — warned this week that it was still too early to tell whether they would sign on.
In other countries, including Denmark and even France, emerging political opposition to the accord could complicate attempts to ratify it. Ireland, where polls have shown strong public opposition, may need to hold a national referendum.
Meanwhile, troublesome economic indicators have continued to mount. In Greece, data released this week suggested that Athens might be witnessing the beginnings of a bank run, with worried corporate and individual depositors yanking $7.26 billion out of banks in October, or 4 percent of all the cash in the financial system. On Wednesday, meanwhile, the deeply indebted Italian government was forced to pay
record-high interest rates to raise cash on the market, a clear sign that investor panic over the ability of Rome to pay its bills has not subsided.
The uncertainty over the fate of Friday’s agreement “adds to the general feeling of unease that this is really not the big step forward that had been hoped for,” said Howard Archer, chief European economist at IHS Global Insight in London. Investors, he said, “have stepped back and looked more closely at what’s been agreed and taken into account growing concerns about implementation. The result is resumed worrying about the situation.”
Investors also appeared to be responding to the fact that the agreement last week, even assuming it is put in place, largely addresses long-term solutions to prevent a new crisis rather than tackling the immediate problem of a loss of confidence in nations such as Greece and Italy.
The lack of clarity over what short-term measures could ultimately be taken has only seemed to grow in recent days, with German Chancellor Angela Merkel reiterating her position that a bailout fund for troubled nations should not be increased. Given Berlin’s resistance to coughing up more cash for its neighbors, analysts have sought clarity on whether the European Central Bank will step in. But the ECB has refrained from directly signaling how much further it is willing to go.
British Prime Minister David Cameron has spent this week defending his decision to veto the summit deal Friday, though the move was widely embraced by the British public, according to opinion polls. In the coming days, his move, analysts said, may embolden anti-E.U. members of his Conservative Party to again attempt to push for a national referendum over Britain’s full membership in the European Union.
At the same time, countries that were on the fence last week expressed more caution over their willingness to see through a deal. Swedish Prime Minister Fredrik Reinfeldt told reporters in Stockholm that it was too soon to tell whether his country would agree to a pact. “I would not speculate,” he told reporters Tuesday. “To my mind it is very clear that we do not have all the facts on the table, and unless we have that, it is tough to make a final verdict.”
Czech Prime Minister Petr Necas, who remains concerned about fresh E.U. influence in domestic Czech affairs, echoed those sentiments, saying all the Europeans had now “was a blank piece of paper” that needs to be filled with details before he can judge the merits of an agreement.
In Brussels, officials were scrambling to draft details of a new treaty, possibly including how quickly new spending and borrowing limits would need to be adopted. A working version was expected to be issued to national capitals by next week.
Merkel on Wednesday sought to play down the building skepticism over the treaty’s workability. She said she was “convinced” that a binding treaty would take shape “if we have the necessary patience and endurance” and “if we do not let reversals get us down.”
But analysts warned thatit may yet be hard for European governments to surrender more control over their budgets to regional authorities. “This is potentially one of the largest dilutions of national parliamentary sovereignty in the history of the E.U.,” said Robin Niblett, director of Chatham House, a London-based think tank. “It’s one thing to lose parliamentary sovereignty over bananas or car parts but another not to be in charge of your national budget.”
Special correspondent Karla Adam contributed to this report.