Mission for eurozone leaders

Updated: 2012-08-03 13:55

(China Daily)

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The odds of a safe landing for eurozone seem to be decreasing unless European leaders act decisively on reform measures.

Despite the European Central Bank's vow to draw up a mechanism to make outright purchases and stabilize the eurozone borrowing costs, the lack of more in-depth systematic reforms will see such measures achieve only temporary results. Bank President Mario Draghi said on Thursday the body may undertake "outright open market operations of a size adequate to reach its objective".

The latest economic survey has cast a gloom over Europe. Financial information provider Markit's purchasing manager's index (PMI) for eurozone manufacturing, unchanged at 45.1 in June, is at its lowest since June 2009. Some forward-looking indicators, such as business expectations index, also show that the eurozone economy is de facto in recession.

The corporate sector, meanwhile, cut its work force at the fastest pace since 2010, anticipating austerity measures as a result of upcoming steps to tackle the crisis. All indicators point to a worsening situation, while leaders of the eurozone economies continue to bargain over compromises in the rescue plans.

International Monetary Fund Managing Director Christine Lagarde has warned that there are also "serious questions" about the US economic future. The United States will see declining government spending and surging tax burdens in what is called a fiscal cliff early next year.

The world economy is steadily spiraling down, and China's revived expansion, expected in the second half of this year, alone will not be enough to bolster the whole world economy.

Lagarde and European leaders have known what the right cure for the European malaise is: Eurozone member states need to further integrate their banks and budget policies to provide systematic support for the euro.

But what has happened in the past months shows that it has become a Herculean task for leaders from countries of different sovereignty to find the "golden-mean" option that satisfies their voters, political opponents and the collective interest of the eurozone.

The ECB has made it clear that it will do whatever it takes to combat the crisis. However, they can only loosen its monetary policy further and provide more cheap loans for its banks. Effective as it would be in temporarily reducing market concerns, it cannot be said with certainty that it would resolve the eurozone crisis fully.

To prevent the euro from crashing, European leaders have to show greater political resolve and wisdom. Only then can they make systematic breakthroughs to ultimately bail out the suffering currency.