Endless punishment

The United States and the euro zone are undergoing serious difficulties thanks to the turbulence in the market, which has a common root: the perception that the world economy is again in a period of low growth. In the case of the United States, the cause behind this week's stock-market falls (the Dow Jones plunged 4.31 percent on Thursday) lies in an insufficient growth rate (barely 2.5 percent this year) and in the feeling that the agreement reached by Republicans and Democrats will hamper recovery. In Europe, the message from Jean-Claude Trichet, President of the European Central Bank (ECB), and warnings from President of the European Commission José Manuel Barroso, define the difficult situation the euro zone is going through. Trichet hinted that the ECB has resumed buying debt in order to calm speculation against Italian and Spanish debt. But he did so in such a halfhearted way that his intervention was counterproductive.

Investors interpreted that the ECB had tried to placate the markets by buying Irish, Greek and Portuguese debt. That saw them continue to punish Spanish debt, with the risk premium hovering around 400 points once more. Trichet had the means to clarify that the ECB will buy bonds from both countries as far as is needed to control their risk premium. But instead of doing so, he preferred to merely make hints. He could have also expressed his confidence in European recovery, but he did not know how to do that. His decisions, more than his words, show great fear of the evolution of the financial crisis in Europe.

This interpretation explains the record highs for spreads on Spanish and Italian bonds, and justifies the criticism toward Trichet. But although the ECB has not been clear-sighted in three long years of crisis, the severity of Europe's financial struggles does not stem from its decisions. Barroso summarized last Wednesday an intervention scheme to correct these permanent market upheavals, which have the capacity to destroy the euro. This scheme, by the way, was hearsay among economists and euro-zone institutions, and an undecipherable mystery for Angela Merkel and Nicolas Sarkozy. It is essential to sew up Greece's second rescue plan, and admit that the procedure could be applied to Portugal and Ireland. The new functions of the Stability Fund must be urgently defined so that it can buy debt in the market with the available capital. It is essential that the ECB be free to stabilize the markets.

Germany and France have turned a deaf ear to these urgent and imperative matters. All decisions have been postponed until September, and it is probable that new norms, money and protocols will not manifest themselves for months. Until then, the markets will continue to explore the effective limits of the ECB's debt purchase, spread solvency doubts to countries such as Belgium and punish national debt with unbearable increases in rates. These tensions will ruin growth expectations in the countries under attack. No matter that the Spanish Treasury placed 3.3 billion euros of debt on Thursday — less money, then, for education, public health and public investment in 2012.

All the while the key European leaders — Merkel, Sarkozy, Cameron, Van Rompuy, Barroso — are taking their vacations. Only Zapatero and Berlusconi have been seen at work — not that they have helped matters much.