Professor Fariborz Moshirian

I have doubts as to whether the meeting  this week of European Union leaders – which kicks off on Thursday – will produce any more measures to tackle the euro debt crisis.

The debt crisis is now in its third year and the latest country to be hit is Spain, which is the eurozone’s fourth-largest economy. Stock markets around the world fell sharply yesterday on doubts that the European summit will make any progress in solving the region’s debt crisis. Spanish and Italian bond yields rose in a sign of investor worries, while the price of US government debt rose as investors sought safety.

Certainly sentiment around the eurozone debt crisis is worsening ahead of the crucial meeting.

Right now, everyone is pessimistic, and while we had some positive commentary last week from the G20 meeting, this week there seems to be German resistance to moving forward with joint fiscal liability.

Spain and the Cyprus have now become the fourth and fifth countries to request aid from the eurozone’s bailout funds, extending a casualty list in a protracted regional debt crisis that is threatening to break up the 17-nation currency bloc.

More financial difficulties in Spain, Italy and France are likely to accelerate the process of fiscal integration in the euro zone. This will then allow Germany to provide more financial support to the eurozone members in exchange for more power for the European Commission to supervise and monitor the national budgets within the member countries.

France is resisting fiscal policy supervision by the European Commission. However, more bad financial news from Spain and further the economic down turn in the eurozone may allow both Germany and France to compromise and fast track the process of public finance integration and the emergence of Eurobond over time.

During the upcoming EU Summit, I would strongly urge national leaders to consider the greater interest of Europe ahead of their own national interest and I believe that a collaborative approach to the current financial crisis could make every country better off. This would prepare the European economy to compete with Asia more effectively in the medium term.

Professor Fariborz Moshirian is the Director of the Institute of Global Finance at the Australian School of Business.