The latest injection of funding by the European Central Bank into the eurozone banking system via its longer-term refinancing operations will only postpone – not prevent – further crises on the continent. As European Union leaders prepare to sign off on the second Greek bail-out in Brussels on Friday, it is clear that we have not solved the debt problem at the heart of the eurozone.
Greece’s bail-out is optimistically forecast to reduce its debt to gross domestic product ratio to about 120 per cent by 2020. But, even assuming that this is plausible, what next after Greece? What if Spain or Italy went bankrupt? Can the eurozone’s firewall contain the conflagration?
There is €250bn left in the kitty of the European Financial Stability Facility and potentially a further €500bn in the European Stability Mechanism being introduced in the summer. Despite some wavering, Germany is still opposed to combining these two funds. And with the International Monetary Fund refusing to stump up any more money to bail-out Europe, we face stalemate once more.