The proposal to use E.U. bailout funds to absorb sovereign debt is not new. It was agreed on, for a second time, at the latest E.U. summit June 29 in Brussels. What is new, the officials and specialists said, is the resolve by E.U. leaders to actually do what they had promised to do, seeking to convince financial markets that this time they mean what they say.
Lack of faith in a long list of E.U. summit declarations over the last several years has been a growing problem in banks and other financial institutions, which make loans to E.U. governments based on hard economic assessments that often vary with the lofty language of E.U. communiques, according to a European economic official assigned to follow E.U. proceedings.
“You can see the markets getting wiser all the time,” he said, speaking on the condition of anonymity to avoid offending E.U. governments. “At first it took them several weeks to realize the words would not lead to action. Now within days they realize nothing is being done.”
Luxemburg Prime Minister Jean-Claude Juncker, head of the 17-nation group that uses the common E.U. currency, said that this time euro-zone leaders are ready to act swiftly to reassure lenders if the markets require it and that the European Central Bank is ready to play a role.
“The euro zone is at a point where it must by all means prove its determination to guarantee stability,” Juncker said in a Q&A with Le Figaro newspaper in Paris. “As far as moving into action goes, we will decide based on an examination of the markets within a few days. There is no time to lose.”
But Juncker chafed at the need to move so fast, saying financial markets and the E.U. do not run with the same gait. European leaders often feel pressured to put on a display of action that is not always well thought out, he added, in order to gain lenders’ confidence from one week to the next.
“We live under the dictatorship of the short term,” he said. “Leaders are pushed to react all the time, in a fireworks that has nothing to do with the thickness of the real questions. We do not give ourselves the time to think.”
Mario Draghi, president of the European Central Bank, gave the first indication of the proposed steps last week with a declaration that his financial institution would do everything possible within its mandate to save the euro. “And believe me, it will be sufficient,” he added, without defining what he meant.