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Johannesburg – On Friday the European Union (EU) apparently
ensured that no debt crisis would again afflict the eurozone, yet the current
crisis rages on.
All the EU member states, other than Britain, agreed at a
summit in Brussels to give the EU greater control over their national budgets.
But for most investors the summit also ended in an
anti-climax because no radical, immediate solution to the current crisis was
found.
The tighter fiscal unit agreed upon will mean stricter
regulation on how much debt countries can incur. Even smaller countries will no
longer be able to get away with excessive government debt.
But Britain refused to grant the EU such power over its
affairs and refused to assent to the agreement without guarantees to protect
its financial services sector. President Nicolas Sarkozy of France declared
these demands “unacceptable”.
Germany and France wanted to incorporate the new regulations
in the pact upon which the EU is based, but without Britain's cooperation they
had to be satisfied with mere agreement between the governments of the other
member states.
UK Premier David Cameron moreover hinted that Britain might
prevent the other EU members using the European Commission – an institution he
claims is intended for all member states – to enforce fiscal discipline.
German Chancellor Dr Angela Merkel said she was nevertheless
satisfied with the outcome of the summit. She said she hoped that Britain would
accept the agreement in time.
Investors had expected that a fiscal agreement would
encourage the European Central Bank (ECB) to buy more debt from beleaguered
European countries. However ECB president Mario Draghi on Thursday afternoon
dashed any such hopes.
On Friday the ECB also said that the new agreement would not
affect its plans to buy more than €20bn worth of government bonds each week.
The ECB has for some time intervened in equity markets,
buying government bonds from countries like Italy and Spain. Investors are
hesitant to buy bonds from these countries and consequently demand particularly
high rates of return for holding the bonds, which means that Italy and Spain
will have to pay such high interest rates on their debts that it will be
impossible for them to pay them off.
EU leaders also agreed that in July next year the European
Stability Mechanism (ESM), the EU’s permanent financial rescue fund, will
replace the temporary European Stability Facility.
This fund's firepower will be increased to €500bn and, owing
to opposition from Germany, will not be operated like a bank.
Further, member states will provide €200bn worth of loans to
the International Monetary Fund (IMF).
These loans will enable the IMF to render increased aid to
the eurozone.
Some analysts reckon this amount is too little to rescue
heavily indebted countries, but it can certainly bring temporary relief.
Markets mull EU plan
The outcome of the European Union (EU) summit did not
initially impress global markets much on Friday.
The news that the EU would increase its rescue package
however pushed markets into positive territory by Friday afternoon.
On Friday the JSE opened almost 1% down, but recovered somewhat later and closed only 0.39% off at 32 632 points.
The exchange closed 0.07% down for the week.
On Friday morning at one point the rand pulled back to R8.34
against the dollar, but strengthened to R8.17 by late afternoon.
European markets also began the day shakily, but eventually
ended positive.
– Sake24
For more business news in Afrikaans, go to Sake24.com.
