23 European Countries Sign On To Fiscal Pact

After meeting Friday in Brussels until the early morning hours, most European leaders agreed to a plan to move ahead with more budget discipline. Are world financial markets likely to see the talks as a failure or as progress?

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LINDA WERTHEIMER, HOST:

European leaders are hoping that the global financial markets like the agreement announced this morning. In recent weeks, countries like Italy and Spain are seeing their costs of borrowing creep higher and higher as investors lost confidence in their ability to pay their debts. And if the deal, which took shape today, is to succeed, it will be because those same investors feel it's safe to put their money in European debt again. To find out what's happening today, we turn to NPR's Jim Zarroli in Brussels. Good morning, Jim.

JIM ZARROLI, BYLINE: Good morning.

WERTHEIMER: How are the markets responding so far?

ZARROLI: I think the reaction has been pretty mixed. In the United States, we've seen something of a rally in stock prices. Here in Europe, stocks rose. The euro rose against the dollar. So all that suggests the markets like what they're seeing. On the other hand, the interest rates on Spanish and Italian debt also rose, which suggests, you know, investors are not so confident.

I mean, it really has to be said, every time the Europeans have had one of these summits and, you know, come up with a plan to deal with the debt crisis, there's always an initial reaction. You know, you'll see a big rise in stock prices, for instance. But it never really lasts very long. Once investors have the chance to sort of digest what's happening, they tend to react differently, and this is an especially complicated deals. So I think people are still sorting it out.

WERTHEIMER: Now, before the summit began, some European leaders were talking about a much more ambitious plan, a plan which would rewrite the European Union treaty. That does not appear like it's going to happen. What do you think it will mean to investors that the European leaders negotiated something that is somewhat short of that goal?

ZARROLI: Well, look, I think it would have been a really big accomplishment if they'd been able to rewrite the EU treaty, especially if they've been able to put budgetary controls in place. That's, you know, that's the kind of thing markets like. But let's face it. This was an incredibly ambitious thing to try to do. It takes years to negotiate a treaty that involves so many countries. The changes have to be approved by legislators and even, in some places, by voters. So this was a lot to try to do, and I think investors understood that. I think it was always a stretch to think they could pull this off. And the financial markets were probably skeptical to begin with.

The fact that they're doing this as an intergovernmental agreement and not a treaty change means it probably can be done faster. So there are still a lot of details to be worked out. But you know, it will take months, not years, and time is of the essence right now.

WERTHEIMER: If time is so important, are there other things that they might try, other options?

ZARROLI: There are several options, none of them is without problems. For instance, there are two bailout funds that are suppose to help countries that are having trouble paying off their debts.

European leaders said today that they would be feeding more money into the funds through the International Monetary Fund. The problem is, you know, the funds just aren't big enough. They just don't have enough money in them to pay off all the debts that Europe owes in a worse case scenario. Italy's debts alone could break the funds.

There's also the European Central Bank, which could sell bonds and then use the proceeds to bail out countries. That's another idea. The new head of the ECB, the European Central Bank, Mario Draghi, actually made a speech last week in which he hinted that he might consider that. At least a lot of people interpreted his remarks that way. But then yesterday he came out and said, look, you know, you all misunderstood me. It isn't our job to bail out governments, so don't count on the ECB for help at this point.

WERTHEIMER: So Jim, if the European Central Bank won't help, how much trouble is Europe in now?

ZARROLI: You know, it's in a lot of trouble. And most of the European countries need to borrow money, and they're having trouble doing that. And it's not just that they're having trouble borrowing - I mean, a lot of Europe's big banks own a lot of government debt, and they're in a lot of trouble right now. And if things are tight for the banks, they can't lend, and the economy grinds to a halt. So Europe has some very big problems.

WERTHEIMER: Thank you, Jim.

ZARROLI: You're welcome.

WERTHEIMER: That's NPR's Jim Zarroli, reporting from Brussels.

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