The Sunday Business Post carries an interesting opinion piece by Paul De Grauwe in today’s paper. Although articles are not available on the paper’s website until the Monday after publication, Cliff Taylor has kindly given us early access to article.
The European Stability Mechanism will not not lead to more stability
After much hesitation and a lot of pressure exerted by financial markets, European leaders finally decided at the end of March to set up a permanent financial support mechanism which was given the name of European Stability Mechanism (ESM). From 2013 on, Eurozone countries will pool financial resources to be disbursed to member-countries in times of crisis. This historic decision illustrates the painful and slow way the Eurozone moves in the direction of more political integration in Europe.
Will the establishment of the ESM shield the Eurozone from future crises? My answer is unambiguous. It will not. In fact it is worse than that. Some of the features that have been introduced in the functioning of the ESM will make it more difficult for a number of countries, in particular Ireland, to attract funds in private markets. These features will have the effect of increasing rather than reducing volatility in the financial markets.