Commenting on the agreement reached by EU leaders today, Prof Philip Booth, Editorial Director at the Institute of Economic Affairs, said it does not get close to resolving the eurozone's difficulties. He said:
“Though an agreement has been made to recapitalise the banks in case default spreads beyond Greece, it is likely that some of that capital will be provided by the already heavily-indebted governments that are the cause of the problem.
“Furthermore, the agreement to expand the bailout mechanism is still vague. It is possible that huge upfront guarantees by EU governments have been avoided but only at the expense of loading even bigger burdens onto EU governments should there be a default in the future.
“This is a high-risk strategy for the EU member states. If Italy undergoes radical reform to raise its growth rate, the eurozone might just contain this crisis to Greece. However, if Italy does not undertake reform, the crisis will simply get worse.”
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Notes to editors
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems.
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