EU Tax & Budget Pact

mikeyboy

Market analysts don't seem to be overly impressed with the latest pact hammered out to "solve the Euro crisis" (source BBC)

Trevor Greetham, director of asset allocation, Fidelity Worldwide Investment



We have another euro agreement but one that misses the point. What is going on in the euro area is not a crisis of government profligacy. It is a balance of payments crisis of a fixed exchange rate regime.
Moves to enshrine balanced budgets in national constitutions are fair weather policies not able to deal with current imbalances, which again were not primarily related to government spending but to a lack of competitiveness.
We will see more bursts of ECB intervention in sovereign bond markets and more aggressive policies to support banks, so rallies from depressed sentiment levels will occur.
What we would need to see to end the crisis once and for all is full burden sharing - with clear and unconditional ECB support the first step - and forceful policies that inflate the core rather than deflate the periphery.



Steven Barrow, Standard Bank



We do not believe that the summit has failed in the sense that leaders have come away without any agreement whatsoever, leaving S&P no choice but to downgrade the whole region and the markets no choice but to pummel euro zone bonds and the euro into the dust. But ‘success’ is relative.
in our view, ’success’ actually means ’failure’. We say this because EU leaders have misidentified the causes of the crisis. German leader Merkel essentially said yesterday that the crisis has come about because governments did not respect the Stability Pact, which was meant to enshrine good budget practice in the region.
This is why the gist of this summit is to resurrect the Stability Pact, but this time make things like balanced budget targets and automatic sanctions for transgressors a treaty requirement and not just some pipe dream. In our view this crisis is not actually about poor budgetary discipline.
The reason the euro zone has a debt crisis is because it lacks the transfer mechanisms that compensate for the fact that national policymakers can no longer run an independent monetary and currency policy. And bailouts don’t substitute for proper transfer systems.

Personally I hope it will be enough to bring some sort of stability but I fear that the "markets" are simply waiting for S&P and their ilk to make their decision and that is when we will see what happens.