A Second Chance for European Reform

MUNICH – The European Central Bank has managed to calm the markets with its promise of unlimited purchases of eurozone government bonds, because it effectively assured bondholders that the taxpayers and pensioners of the eurozone’s still-sound economies would, if necessary, shoulder the repayment burden. Although the ECB left open how this would be carried out, its commitment whetted investors’ appetite, reduced interest-rate spreads in the eurozone, and made it possible to reduce the funding of crisis-stricken economies through the printing press (Target credit).

This respite offers an ideal opportunity to push forward with reforms. Greek Prime Minister Antonis Samaras must convince his countrymen that he is serious about implementing them. Spanish Prime Minister Mariano Rajoy and Portuguese Finance Minister Vitor Gaspar deserve more support for their plans. And one can only hope that Italy’s caretaker prime minister, Mario Monti, contests the next general election. All of these leaders understand what must be done.

France, by contrast, does not appear to have noticed the writing on the wall. President François Hollande wants to solve his country’s problems with growth programs. But when politicians say “growth,” they mean “borrowing.” That is the last thing that France needs.

France’s debt/GDP ratio is already around 90%; even if its 2013 budget deficit does not exceed 3.5% of GDP, its debt/GDP ratio will have climbed to 93% by the end of the year. The government’s GDP share, at 56%, is the highest in the eurozone and second highest among all developed countries.