Winning the European Confidence Game

If any solution to the European crisis proposed over the next few days is to restore confidence to the sovereign-bond markets, it will have to be both economically viable and politically palatable to rescuers and rescued alike. This means paying attention not just to the plan’s technical details, but also to appearances.

CHICAGO – If any solution to the European crisis proposed over the next few days is to restore confidence to the sovereign-bond markets, it will have to be both economically viable and politically palatable to rescuers and rescued alike. This means paying attention not just to the plan’s technical details, but also to appearances.

There is growing consensus about any solution’s key elements. First, Italy and Spain will have to come up with credible medium-term plans that will not just restore their fiscal health, but also improve their ability to grow their way out of trouble. While any plan will involve pain for citizens, the markets must deem the pain politically tolerable, at least relative to the alternatives.

It is important that these plans be seen as domestically devised (though voters will have no illusions about the external and market pressures that have forced their governments to act). At the same time, an external agency such as the International Monetary Fund could render the plan more credible by evaluating it for consistency with the country’s goals and monitoring its implementation.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

http://prosyn.org/ou8uMbv;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.