European debt crisis: Optimism fades less than a week after summit deal

LONDON — Doubts are growing over the ability of European nations to fully enact a promised landmark pact to shore up the foundations of the euro, with several countries expressing renewed reservations about a new treaty even as the region’s debt crisis gets worse.

All countries in the 27-nation European Union except Britain agreed Friday to a summit deal aimed at signing a new accord by March. Among other measures, the new treaty would impose enforceable caps on government borrowing and spending to bolster investor confidence in the finances of heavily indebted European countries.

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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.”