Buying time

Krone, dollars or euros? The calculation trick to reach the amount you want depends on the currency you use.

At least that's what eurozone finance ministers must have been thinking when they came up with the silly idea to recalculate their rescue package in dollars to make it look bigger than it really is. No one could ever think that fund managers far away in Asia or the United States could be dumb enough not to notice the trick. The Europeans proudly announced that they got together $1 trillion, but no matter how you calculate it, it's still really 800 billion euros.

And even that sum doesn't tell the whole story, since 300 billion euros of it has already been given out as loans to Greece, Ireland and Portugal. That leaves 500 billion euros that could be given out in additional loans to countries threatened by the crisis - countries including Spain, Italy, Slovenia and Cyprus.

All the experts and finance ministers are well aware that this sum will not be enough to save a large euro country from bankruptcy. There simply cannot be another case of a country needing money. That's the reason why eurozone leaders have always emphasized that Spain and Italy must implement economic reforms, consolidate their budgets and make painful cuts to pull themselves out of the credit mess. Stimulus programs, however, are out of bounds since they would be funded by additional debt.

Rescue funds, firewalls and emergency loans are not intended to give country a false sense of security. All the billions of euros really buy is time for nations to get themselves back on their feet so they can stay in the eurozone. That the Greek prime minister toyed with the idea of another aid package just before the ministers' meeting is certainly the wrong signal.

There is a relative calm on the world's financial markets at the moment. Interest rates for Italian bonds have sunk, but it's far too early to issue the all clear. The situation is still too unstable.

In addition to the EU countries' involvement, the European Central Bank is also participating in the rescue of the European banking system by offering cheap loans. This ECB rescue fund, which does not get enough attention, is even bigger than the one being put together by member states.

Even the banking fund only buys time though - three years of it, then the loans must be repaid. The European Union needs to use the time to finish reforms in the banking and financial sector. Regulating financial markets and increasing bank capital has to take priority. That's the only way to arm oneself against a repeat crisis.

Members of the EU have to learn to stick to the new, strict rules set out by their fiscal agreements, which in the case of Spain have already been weakened. If they cannot manage this, then firewalls are not going to help either.

The next wall will be set up in Washington by the International Monetary Fund and weigh in at 460 billion euros. That's how China, India, Brazil and other emerging countries will contribute to saving the eurozone in its time of crisis. For many Europeans the world is going to look backwards.

There are also other parts of the world that are still struggling with the debt crisis. The level of debt carried by the United States, for example, is worryingly high. China is also blowing financial bubbles that are going to pop some day. If these giants begin to stagger, then the billions contributed to rescue funds will shrink to drops in the ocean.

Author: Bernd Riegert / sms
Editor: Martin Kuebler