European leaders, trying to solve the debt crisis, have finally agreed on a long-term solution. The new ‘fiscal compact’ – if finally enacted – will make it illegal for a member country to run up budget deficits larger than three per cent of the GDP. If a member country breaks that law, it will face legal proceedings at the European Court of Justice and ultimately sanctions.
To resolve the current crisis, the European Financial Stability Facility (EFSF) was set up to act in an emergency: If a member state cannot pay its bills, the bailout fund steps in.
Klaus Regling, the CEO of the EFSF, talks to Al Jazeera’s Sami Zeidan about the debt crisis, and the challenges he is facing to solve it. Will the ‘fiscal compact’ solve Europe’s problems? Does Regling have the money and the credibility it takes to resolve the crisis? And, looking at market reactions, why are markets not convinced that the monetary union will function better in the future?
“The summit last week focused on longer term issues, the ‘fiscal compact’ … necessarily is something long-term, it’s not for tomorrow, not for next month only, it’s for the next years and decades. Markets on the other hand focus mainly on the short-term and therefore they don’t understand the full impact of the decisions that have been taken. In the long run this will be very positive. The euro will be there for decades… and markets will understand that there is enough firepower… The firepower of the ESFS is substantial, it will be reviewed in March so if it’s not sufficient I am sure our governments will take that into account.”