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Open Europe responds to eurozone summit
The draft conclusions suggest that eurozone leaders have agreed to decrease the interest rate on loans from the eurozone bail-out fund - the European Financial Stability Facility (EFSF) - as well as extending the maturity of loans to at least 15 years. Leaders have also agreed to expand the scope of the EFSF so that it can issue "precautionary lines of credit", aid in the recapitalisation of struggling banks and purchase government bonds on the secondary market. On the hotly disputed topic of private sector involvement in a second Greek bailout a "menu of options" looks set to be offered to private investors, including a bond swap and debt buy-back.
Meanwhile, UK Chancellor George Osborne has today announced that, "I think we have to accept that greater eurozone integration is necessary to make the single currency work and that is very much in our national interest...We should be prepared to let that happen."
Open Europe's Chief Economist Raoul Ruparel said,
"Ultimately, today's agreement is just further window dressing. Eurozone leaders have still failed to address the underlying problem of Greek solvency. Without some form of long term debt relief and a sustainable plan to return the Greek economy to growth, taxpayers will continue to be heavily exposed to a Greek default. A second bailout and the expansion of the EFSF may provide a liquidity boost, but will ultimately transfer risk away from the private sector onto the books of taxpayer-backed institutions."
"It looks as if Greece will be forced into some kind of temporary default, but the mechanisms for dealing with this look to be thin on the ground. This plan offers the negatives of a default, albeit a temporary one, without proper backstops or the positives of long term debt relief, which is what Greece, and potentially other struggling eurozone countries, really need."
"George Osborne's call for greater eurozone integration in order to save the single currency raises several fundamental questions. It's vital to the UK's economic future that the euro area - whatever form it may take - finds a long-term solution but it's far from clear that there is a coherent economic plan on the table for further eurozone integration. Unless the solution is both economically and politically viable in the long-term, the risk of another crisis with the capacity to seriously impact on the UK won't have gone away."
"If it's going to encourage further eurozone integration, the Government must be absolutely clear about its vision for the UK's future relationship with a fast-changing Europe. This should include a clearly defined list of powers that it wants returned from Brussels to Westminster."
Open Europe will next week publish a briefing note on the impact of the eurozone crisis on Spain and Italy.
Click here to read Open Europe's briefing on a second Greek bailout: http://www.openeurope.org.uk/research/greece2ndbailout.pdf
Click here to read Open Europe's briefing on the exposure of the European Central Bank to the eurozone crisis: http://www.openeurope.org.uk/research/ECBandtheeuro.pdf
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