In the ongoing saga of the eurozone sovereign debt crisis, experts including Olli Rehn, EU monetary chief, say that the next 10 days are crucial to Europe’s future.
The EU acknowledges that it may need to turn further to the International Monetary Fund (IMF), but says it must act fast after agreeing to increase the capacity of the EFSF, the eurozone’s bailout fund.
Eurozone ministers agreed during Tuesday night meetings to leverage the European Financial Stability Fund (EFSF), but could not say how much. Rapidly deteriorating markets have left leaders uncertain, and has made the EU look to the IMF.
The situation is made more dire as economic news throughout the eurozone has been gloomy.
Italian and Spanish bond yields continued to climb up towards unsustainable levels on Wednesday because investors feel the leaders’ action with the bailout fund is inadequate and still leaves the eurozone open to disaster.
Meanwhile, shares in European firms fell across listings and ratings agency Standard & Poor’s made another round of credit cuts. This time, the cuts were to many of the world’s leading banks, including HSBC and Barclays.
Fleeing the eurozone
Some strategists feel that the EFSF, or eurozone bailout fund, is “yesterday’s solution,” since the market clearly does not have confidence in it.
Instead of buying bonds from European governments so that the eurozone can afford to get itself out of debt, investors are running from the euro zone bond market. Not even the high yields on Italian and Spanish bonds can tempt investors to take such a risk as to invest in the eurozone during this time.
Meanwhile, European banks are dumping government debt just as a recession looms for the final quarter of this year and the beginning of next.
It is no wonder that Economic and Monetary Affairs Commissioner Olli Rehn has said that the eurozone is “now entering the critical period of 10 days to complete and conclude the crisis of the European Union.”
Most feel that the EU has waited too long already, and has forced the world into a another financial crisis and drops in growth.
Many analysts feel that whatever is being done now with the EFSF is not enough, and that only radical measures – such as having the European Central Bank intervene to buy government bonds – can help solve the crisis.
As of now, it looks as though eurozone leaders have their hopes on an IMF-backed solution, with the IMF matching the amount by which the EFSF is leveraged. Whether the IMF will agree to be drawn further into the eurozone crisis is uncertain.