Guest Bloggers: William Doane & John Gabrielski
The last time the G8 Summit met there was a looming possibility of Greece making a detrimental exit from the Eurozone. The world leaders who met at Camp David, Maryland, discussed plans to keep Greece within the Eurozone as well as focused on economic growth in Europe. With an important electoral victory in Greece following the June 17th elections, it had seemed Greece had escaped what has been called a “Drachmageddon”. Although Greece’s extreme debt situation is still apparent to the G8 leaders, Spain and Italy are the focus of the current two day conference which ended today. Despite Spain and Italy being in the spotlight for this Summit, there was a larger and broader discussion of economic integration over the last two days.
Tuesday (June 26) before the Summit, European Council President Herman Van Rompuy, released a report entitled “Toward a Genuine Economic and Monetary Union”. Along with the presidents of the commission, the EuroGroup, and the European Central Bank, Van Rompuy produced a ten-year program to discuss during the Summit. In his report, Von Rompuy proposed four “building blocks” to an economically integrated Europe. Those four building blocks consist of the following: (i) an integrated financial framework; (ii) an integrated budgetary framework; (iii) an integrated economic policy framework; and (iv) a mechanism that ensures the necessary democratic legitimacy and accountability and decision making within the Euro.
Notwithstanding that those “building blocks” (their explanations have already been highly criticized by Germany for its focus on the possible idea of “debt sharing”), Von Rompuy seemed determined to push his agenda and discuss the report with the G8 Summit. Riding on a concept of Eurobonds, Euro-bills, and possibly, a European “treasury office”, the focus of the report is to fix the national policy differences that have led to the last two years of ongoing European infighting and crisis, and strive to create an economically integrated Europe to promote economic growth. Despite the hope of an economically stable integrated Europe, faith in the European currency must be restored not only by its leaders but by those willing to invest in the Eurozone.
When EU members met yesterday, the main agenda was the survival of the Euro and the restoration of confidence in the troubled currency. In its closing announcement, the G8 stated that seventeen of the twenty-eight EU countries will drop the requirement that taxpayers get preferred creditor status on aid to the already troubled Spanish banks. In reaction to this surge in optimism, stocks and bonds in Spain rose and yields on Spanish debt plunged. The Euro rallied and in the US, the DOW jumped 200 points at its open; the rally was broad and worldwide. Hopefully, confidence for the Euro can slip its way back into the minds of the citizens, investors and decision makers. Perhaps then, the EU will move forward to some workable form of central banking system and support for investors and depositors. Stay tuned – hopefully, it’s not just wishful thinking.