Mats Persson

What Cameron should push for in Brussels

As David Cameron stays in Brussels for his third European summit as PM, it’s becoming increasingly clear that the EU’s approach to the eurozone crisis – put up short-term cash and pray – isn’t convincing anyone.
 
On Wednesday, Moody’s threatened to downgrade Spanish government bonds another notch, citing the fact that, between them, the country’s government and banks have to raise €290bn next year to keep the party going. And, across the eurozone, banks and governments face daunting refinancing targets in 2011, which begs the questions: at what cost? And what happens if they fail to meet them?
 
Taking into account the countries that themselves have received support and the need to maintain retain a ‘triple A’ rating for the rescue fund, the real amount available in the EU/IMF bail-out pot could well be something like €410bn, as opposed to the €750bn outlined on paper earlier this year. This will probably not be enough to put Ireland, Portugal and Spain on life support at the same time, should things get messy.  
 
Viewed from London, it’s worrying that the Cameron government has so few ideas and strategies in place for how to take Europe out of this mess. They may have circulated a letter calling for spending restraint, and received the backing of France and Germany. But, given the interconnectivity of Europe’s trading books, without a fundamental solution, the eurozone’s problems will remain Britain’s problems.
 
So what, then, should Cameron be pushing for at today’s summit?
 
Firstly, he should back Angela Merkel’s attempts to allow for a restructuring of eurozone (Greek, Irish and Portuguese) debt in the medium term, including hair-cuts for investors. At the same time, Europe’s banks, not least Spanish ones, should be pushed to come clean on their loan losses, so that we can flush out Europe’s sick banking system once and for all (here genuine, rigorous stress tests could help to identify how big the problem really is).











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