New European Treaty Won't Solve Current Liquidity CrisisDecember 10, 2011
The agreement European leaders reached Thursday night was taken by some as a sign that the eurozone would avoid breakup. Not so fast. Economists, political leaders and other observers caution that the new pact does not go far enough to address the immediate liquidity crisis threatening European banks and governments.
To shore up those institutions, the European Central Bank would have to take more drastic action by buying up large amounts of government debt. And so far it's been unwilling to do that. On Thursday, ECB President Mario Draghi said that he was "surprised" by some observers' interpretation of his Dec. 1 comments that the ECB might buy large amounts of government debt.
Every country in the European Union except the United Kingdom agreed on Thursday to sign a treaty enforcing stricter budget rules on member nations. The treaty would give central European authorities the power to sanction countries that overspend and strike down national laws that break budget rules. The markets rallied only modestly after the news, with the Dow rising 186 points on Friday.
The agreement must be approved by the individual countries' legislatures, which could take three months, according to Reuters. It's unlikely that the ECB would step in to offer more aid until the pact has been ratified.Read More...