Global financial markets have strengthened since the US Federal Reserve announced its third (indefinite) round of quantitative easing (QE3) economic stimulus programme and Eurozone leaders announced that its rescue fund for debt-burdened member states was ready to begin operations.
However, the markets have not been rational since the start of the financial crisis, becoming over-exuberant at any perceived good news or action by the relevant authorities and plunging at the first sign of trouble. It is unlikely that the present round of optimism will last long enough to provide them with the stability necessary for a sustainable financial and economic recovery. The first formal meeting of the euro 500 billion (Dh2.37 trillion) European Stability Mechanism (ESM) has boosted the zone’s resources to tackle its debt problems. But, the ESM cannot resolve the political disagreements which have so far prevented Eurozone members from effectively tackling the crisis.
Greece is deadlocked with its creditors over the austerity measures that were part of the conditions for its financial bailout, Spain is dilly-dallying about asking for aid from the ESM because of domestic political pressures and Germany is still resisting efforts to rescue troubled Eurozone banks. Failure to resolve any of these will render the ESM useless. Moreover, despite all the financial engineering, there is little sign in the Eurozone of economic growth which is the only sustainable solution to its debt crisis. The Eurozone must look at spending some of its scarce resources on sustainable economic development projects.
