The future of economic governance in the the EU - European Union Committee Contents


Supplementary memorandum by Sir Martin Jacomb, Canary Wharf Group (EGE 19)

What are the key factors the market will consider when it reacts to any new economic governance regime? Will a new regime persuade investors to lend to Europe's governments struggling with their public finances?

  My (shortened) opinion on the question which you pose is as follows: It will be difficult to persuade investors to lend to European governments which have not got their public finances in such a position that it is likely that they will be able to repay their debts on time. In other words, borrowing countries must not only have their public finances in order currently, but also be able to convince investors that their economies will remain sufficiently productive to keep them in order. This is why it is sometimes preferable for countries which have borrowed too much to restructure their debt, writing off a proportion of liabilities so as to bring the residual obligations within credible limits. Forcing an austerity regime on an economy will often make it less productive and thus prolong the "agony".

30 November 2010




 
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