Pressure mounting for decisive action to solve EU debt crisis

Pressure on eurozone leaders to come up with a long-term solution to the debt crisis continued to mount yesterday as the troika of EU, IMF and ECB inspectors green-lighted the release of the next €8 billion tranche of a bailout loan to Greece.

The crisis... must be tackled decisively

Malta will have to fork out €5 million as its part of this tranche amid more speculation there will be a “managed default” of the Greek debt.

However, efforts to put together a bigger rescue fund for threatened banks and heavily indebted states suffered a setback last night when Slovakia rejected an expansion of the existing eurozone facility (see separate story).

Reporting at the conclusion of investigations carried out in Athens, the troika – European Union, International Monetary Fund and European Central Bank – said Greece had made only patchy progress in meeting the terms of a bailout agreed in May last year.

“It is essential that the authorities put more emphasis on structural reforms in the public sector and the economy more broadly,” the troika said in a statement.

Additional measures were likely to be needed to meet debt targets in 2013 and 2014 as a privatisation drive and structural reforms were falling short. “Decisive implementation of existing plans should allow next year’s debt goals to be met.”

Observers are generally of the opinion, however, that the money will only buy Greece and its partners a brief time window.

Following last Sunday’s inconclusive meeting between Germany and France on a strategic plan to shore up European banks and further increase the fire power of the euro area’s rescue fund, the President of the European Council Herman Van Rompuy announced the postponement of the next EU summit by a week, to October 23. This, he said, was in order to give more time to eurozone leaders to come up with a comprehensive plan to halt the crisis.

The heat on EU leaders for such a plan to be reached very soon was raised even further yesterday by the Governor of the European Central Bank, Jean Claude Trichet and through an open letter published in all major national eurozone newspapers today (see pg10) by a group of influential EU citizens. Led by financier George Soros, they include former heads of European governments and European Commissioners as well as prominent business leaders

Mr Trichet addressed the European Parliament yesterday in Brussels in his capacity as chairman of the European Systemic Risk Board, created to avoid a repeat of the 2008 financial crisis. He said “the crisis is systemic and must be tackled decisively”.

“The high interconnectedness in the EU financial system has led to a rapidly rising risk of significant contagion. It threatens financial stability in the EU as a whole and adversely impacts the real economy in Europe and beyond.”

The seriousness of the situation was also emphasised in the Appeal for Europe open letter, signed by 70 “concerned Europeans” calling for radical action to solve the eurozone financial crisis. In their letter, the signatories argue that the current measures being adopted by governments are “too little and too late” and are contributing to the financial turmoil.