Reform discussion in Europe run the risk of bearing no fruit if we continue to focus on choosing between austerity and growth. These words issued from the director of the IMF, and it is useful to reflect on them now that important political actions are taking place in Europe right now. Some causes for concern: the results of elections in Greece have not served to clarify the country's economic and political future. Greece will continue to struggle to build a government that can meet its financial obligations.
Some good news: France and Germany are making moves and, while Hollande stated that his commitment to growth is not at odds with austerity, Merkel is stretching out a helping hand that until now she has kept close to her side.
This good news, along with the EU's announcement that it will give Spain a little more time to meet its budget objective, contributed to a good trading session for the markets yesterday.
Despite some good news in Europe, the overall view for Spain is plagued with risks and unresolved problems. So it is critical to focus reform discussions and determine what each actor is responsible for. The EU is making available to its member nations 150 billion euros in funding to aid investments, although a part of this will need to be co-financed by the nations who use the aid.
Further, member nations need to resolve problems in the banking and real estate sectors. Spain, in particular, needs to wrap up its reforms quickly. Still, this effort will be in vain if the ECB does not inject more liquidity and introduce a Eurobond. So that we don't engage in fruitless debates, all players need to act with clarity, decisiveness and cooperation.
