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Jun 24, 2012, 09.40 AM IST
Diego Iscaro of IHS Global Insight believes that national governments should step in and help European Union leaders save the eurozone from the financial crisis it is currently experiencing.
In an interview to CNBC-TV18, Iscaro says that it is not enough for only the eurozone policy makers to make all the decisions, and that country governments should step up to the plate as well. “We need Europe to tackle the long term fault line the eurozone has, but also we need the national governments to go ahead with structural reforms and fiscal adjustment,” he said.
He believes that leaders in the area have now understood that the temporary measures they are taking will not help put an end to their troubles. “The crisis has reached a point where European policy makers have realized that they have to tackle the structural issues affecting the eurozone,” he said.
Iscaro, however, says it will be years before any solution actually materialises. “In the long term, I think the problems in the eurozone come from the fact that we have an incomplete monetary union and that is something that needs to be tackled in the long term if the eurozone wants to survive,” he said.
Below is an edited transcript of his interview with Menaka Doshi. Also watch the accompanying video.
Q: Are the events of the past week indicative of a solidifying trend or finding solutions, and are these solutions specific enough for the markets?
A: I think we have been having too many interesting weeks over the last two and half years, and what is happening now is that the crisis has reached a point where European policy makers have realized that they have to tackle the structural issues affecting the eurozone. I think they realize that with temporary measures these crisis will continue on and on.
Q: But are these moves just more in a general trend or do they actually seem to be moving towards a solution?
A: We hope that eventually we come with a solution. What we have so far is not detailed enough to actually help towards a final solution. But I think there is a realization that Europe has to go towards a more integrated fiscal situation and possibly banking union and I think what we are seeing now is at least the sketches of these measures which hopefully are going to be taken going forward. But obviously, what we have now in terms of detail it is not enough and hopefully we are going to have more details following next week’s summit.
Q: We have seen more unity in the voices coming out of Europe, they seem to be all now hinting towards more integration. But I wonder how long this unity will last and at what point Germany will get isolated. Till now Germany had France on its side to be able to balance the negotiations out, but now Angela Merkel stands alone because Hollande is clearly on the other side. So I am curious to know whether this sense of unity, this sense of purpose will last long.
A: Well you can argue that Germany is already isolated. I think the stress coming from Germany, stress on austerity, is being challenged by France, Italy and Spain. I think if you combine that with the fact that the crisis has started to worsen in larger countries in the eurozone, and we are not talking about Greece, Ireland, Portugal and other small countries, but Spain and Italy, I think that may act as a trigger to Germany to be more flexible in its position.
I think there is an agreement on where Europe has to go, what direction it has to go, but I don’t think this is an agreement in terms of how at least to achieve that union that everyone is talking about.
Q: What would you like to see the European politicians doing for you to believe that we have moves from the path of crisis to the road of recovery?
A: There is no single bullet, there is no easy solution. This is something that’s going to take possibly years. What we need is from Europe is a clear path, clear plan on how these fault lines in Europe are going to be sorted.
I think we need a credible and robust program and plan to see how Europe is going to achieve a fiscal and banking.
Q: What do you mean by a credible and robust plan? Specifically what are you looking for?
A: We need specific details and we also need political willingness and political assurance that Europe is together in the same direction. But even if we have that, that’s not going to be enough because at the moment what is also important is that national governments also make progress in terms of rebalancing their economies, introducing structural reforms and also putting their fiscal house in order.
I think we won't to have a solution only coming from Europe or only coming from the national governments, I think we need both. We need Europe to tackle the long term fault line the eurozone has, but also we need the national governments to go ahead with structural reforms and fiscal adjustment.
Q: Can you lay out for me what you are hoping to hear from the EU summit next week for you to be convinced that we are down the right road or at least the road to recovery?
A: Well I don’t think anything we are going to hear next week is going to convince us that we are in the route of recovery. In terms of specific details, it will be nice to hear something about banking integration in the eurozone in terms of for example the Spanish banking bailout, the euro 100 billion, whether Europe is going to channel those funds to the sovereign or it will allow the ESM to recapitalize banks directly. I think that sort of things in short term will be positive.
But in the long term I think the problems in the eurozone come from the fact that we have an incomplete monetary union and that is obviously not working. That is something that needs to be tackled in the long term if the eurozone wants to survive.
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