After crisis fund, EU faces more battles ahead

Global financial markets and the euro single currency have responded positively to news of special crisis mechanism, reached after 12 hours of talks in Brussels and involves EU providing up to Euro 500 billion in emergency funds and IMF Euro 250 billion more.
With the European Central Bank also agreeing to buy euro zone government bonds in the open market, the collective impact has been to erect a vast, imposing safety net under the euro area to prevent Greece’s debt crisis spiralling and infecting Portugal, Spain or other EU member states. Financial analysts expect the dramatic decision, with its “shock and awe” $1 trillion headline figure, to tame the worst of a crisis that had steadily intensified over the past five months and threatened the global economy.

Structural reforms
But it has done nothing to address the political and structural economic differences across the 16-country euro zone, and broader European Union, which were the kindling that allowed the crisis to ignite in the first place. The core of the crisis lies in the high deficit and debt conditions immediately afflicting the likes of Greece, Portugal, Spain and Ireland, as well as deeper structural economic shortcomings southern European countries have long had.

As EU policymakers and German Chancellor Angela Merkel have repeatedly emphasised, the key to euro zone being able to fend off future crises is getting budget deficits and debt under control while forcing deep-rooted adjustments to those economies that lack competitiveness and are hampered by slow growth.

Greece, which has suffered most in the debt crisis, has had to push through several austerity plans, making promises to cut state pensions, free up labour markets, raise taxes and rid the economy of waste, in order to secure EU bail-out funds — Euro 110 billion on top of Euro 750 billion agreed overnight. Portugal, Spain, Italy and other euro zone member states will now be under pressure to take similar steps to Greece — however politically unpopular — in order to insulate the region in the long term and remove the need for  emergency funding.