Anti-crisis pill for European Union: how to rescue the Euro zone?

News of European Union. These days the world is shaken by negative news. It is either about a soon default of the USA and rating downgrade, or a crash of stock markets... and now it is hysteria around the possible dissolution of the EU. Some negative news is changed by others. And it is for several years now. Is there any hope for economic recovery in the countries of Euro zone, and what shall investors expect?

Last Tuesday during the Franco-German summit the heads of the EU leading states were looking for the ways out from the critical situation, in which the EU had been found. And this is happening when it is near at hand that the question of European integration existence may arise. According to the analytics of Forex Academy and Masterforex-V Futures Trade and Stock Exchange, this meeting did not provide the expected results. It can be compared to a pill, which is prescribed in the case, in which intensive care, if not reanimation, is needed.

What to expect from the summit?

High hopes were laid on the meeting of German chancellor Merkel and French president Sarkozy. It was called “crucial” for the entire Euro zone. It was expected that effective measures against the increase of the EU debt crisis would be taken. Hopes were laid on concluding agreements on preventing great economic downturn Euro zone crash as well as on strengthening the monetary union.

However, the ideas that could become real steps towards the realization of these targets were rejected:

1. the question is about increasing European Financial Stability Facility (EFSF) as well as about issuing single bonds of the European Union. Speaking about increasing EFSF, the summit participants expressed the opinion that the present 500 bln. Euro is enough. However, some experts admit that such decision to add money to EFSF, having “printed” about 2.5-3 trn. Euro for it, could rescue the situation. This would be enough to ease the markets. Later restructuring the debts of Greece and Portugal could easily be dealt with, as this would not evoke any disaster;
2. concerning the last idea – about Euro bonds – it was said at the summit that this was an extremity. German position in this question is clear: Germany would not like to take a part of wasteful southerners’ (Greece, Spain , and Italy) debt upon itself when the national debts of the EU countries are mixed together. If the decision about European bonds is taken, problematic countries would be able to take credits on more favourable terms than with the current situation. Experts have calculated that in such case Germany would have to undertake additional expenditures of 67.6 bln. dollars yearly. The actual redistribution of financial flows from Germany to southern “problematic” countries would happen.

What was finally suggested, what measures will rescue the Euro zone?

Several points are to be highlighted amid the ones that were suggested at the summit, they are:

- constitutional limitation of budget deficit. However, the realization of this project will take several years and will have no influence on solving the burning issues;
- decision about creating single economic government was taken. However, this idea is unable to ease the current burden, for its realization requires a long time span;
- it was suggested to return to the question of financial transactions’ taxation. This idea has its advantages (is able to give a big sum of money) and drawbacks (it suppresses arbitrage and may lead to hyperconcentration of financial sector). In any case, it cannot be called an efficient reanimation measure. It can only be called a mild pill, which will not cure the European Union from the bunch of its serious diseases.

The Editorial Board of “Market Leader” magazine, jointly with experts of Forex Academy and Masterforex-V Futures Trade and Stock Exchange, holds a questionnaire in the traders’ forum: in your opinion, will the heads of heads of the EU leading states be able to prevent the crash of Euro zone and strengthen the monetary union?

- yes, the measures against increasing the EU debt crisis will be found;
- no, the crash of Euro zone is inevitable.