Economists breathe sigh of relief

The eurozone deal was “a sigh of relief” as the politicians’ action was “unusually deep and strong”, according to economist Karm Farrugia.

Welcoming the broad agreement reached in the early hours of Thursday by the 17 eurozone leaders, Mr Farrugia said the decision to force banks to increase their capital to nine per cent was “extremely positive” since it reversed some of the imprudence that had been brewing over the years.

He said the expansion of the European Financial Stability Facility was important although he was expecting it to be in the range of €1.5 trillion to €2 trillion to be able to shore up Italy if it floundered.

“Initially, eurozone leaders were talking of a several-fold increase but it only ended up being just over double the current fund. I would have preferred a higher bailout fund to prepare for Italy and the follies of its Prime Minister,” Mr Farrugia said.

This concern about Italy’s high debt levels was also reflected by the head of the University of Malta’s finance and banking department Joseph Falzon.

While describing the deal as “comprehensive and positive”, Prof. Falzon said Italy and other debt-ridden countries like Portugal and Spain still posed a risk.

Italy went to the eurozone summit with a commitment to implement a raft of austerity measures to cut down on its annual deficit and reduce its borrowing needs.

According to economist Lawrence Zammit, the individual governments now have to control expenditure and curb runaway deficits to ensure that the good deal does not go to waste.

The challenge now was how to regulate fiscal policy across the eurozone, he added.

However, Mr Zammit also pointed his finger at the behaviour of investment banks that kow-towed with reckless governments by lending them the money and later speculating on these “toxic assets”.

This posed another challenge, he added, on how best to control investment bankers and speculators across the eurozone.

Reflecting the feel-good response of other economists, Mr Zammit said the eurozone had been in the throes of “a final countdown” that could have led to no deal or a lousy one that would have spelt the end of the euro. “Fortunately a good agreement was reached.”

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