Bank of Spain Chief Economist Jose Luis Malo de Molina said markets were showing signs of the “disintegration” of the single currency before the European Union summit last week.
“The freezing up of the interbank market and the dislocation of sovereign-debt markets constituted signs of disintegration of the single-currency area and serious obstacles to the transmission of common monetary policy,” he said in a speech late yesterday posted on the Bank of Spain’s website.
EU leaders with the exception of the U.K. agreed to bolster fiscal cooperation and strengthen deficit rules after all-night talks in Brussels on Dec. 9 amid concern that Italy and Spain may succumb to a debt crisis that’s brought Greece to the brink of bankruptcy. The fiscal accord provides tighter budget rules and an additional 200 billion euros ($260.2 billion) to the euro area’s warchest in an effort to reassure investors that European leaders will deliver the region from its two-year ordeal.
The summit produced “undoubtedly important steps” even as “they are still partial and the pace may still seem too slow,” Malo de Molina said. Achieving a “convincing stability mechanism” is “a difficult task which implies sensitive questions of moral hazard and of sharing financial efforts among members should risks materialize,” he said.
Efforts toward a new fiscal accord lack a “comprehensive solution,” increasing pressure on sovereign-debt grades, Fitch Ratings said this week. Moody’s Investors Service said it will review the ratings of EU nations because the Dec. 9 summit accord produced few new measures to tackle the debt crisis.
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