Did Europe’s leaders save the euro last week? There is good news, bad news and really bad news.
The good news is that a new permanent crisis resolution mechanism has been put in place, starting in 2013. This European Stability Mechanism (ESM) will be a supranational institution, established by international treaty. By mid-2017, it will be properly funded, with a fully paid up capital base of €80bn. This should be sufficient for a fund with a lending ceiling of €500bn. So, from 2018, the eurozone will be able to tackle future crises.
The bad news is that the various resolutions made this week by European Council will not be enough to carry us through the current crisis. The discussion about the ESM is also a perfect case study of what is going wrong at the moment. It therefore merits closer scrutiny.