Spain and Italy Gain Ground at European Summit

Spain and Italy dominated more than just the soccer field this week.

At the European Summit in Brussels, European leaders negotiated the economic fate of the Euro Zone and future plans to tackle issues of rising debt and unstable markets.

Mario Monti and Mariano Rajoy, the Italian and Spanish Prime Ministers respectively, exerted more pressure than expected against the German Chancellor,  Angela Merkel, to come to an agreement over a debt reduction plan for these two countries in economic peril.

The goal of establishing a European banking union was furthered with the agreement that the European Stability Mechanism (ESM) can directly fund banks without going first through the national governments which already have debt. This allows the banks to be bailed-out directly. The ESM is an institution that will oversee the permanent emergency funding program and is likely to take effect in July. The ESM is the follow up program to the temporary European Financial Stability Facility and the European Financial Stabilizations Mechanism.

Under the new agreements, Italy and Spain will not have to face the same daunting budget cuts that had been required of Greece, Portugal and Ireland in order to receive aid. Instead, Italy and Spain must abide by the standing economic recommendations made by the EU in order to qualify for the aid.

Another part of the negotiation was the need for an over-arching institution to oversee the banks. Most believe this task will end up being that of the European Central Bank.

Italy and Spain are the Euro Zone’s third and forth largest economies, making it more necessary for these countries to have easier access to economic aid. A major economic downfall in either of these countries would be an arguably irreversible collapse for the Euro Zone.

The summit was seen as a welcomed breakthrough given that many Europeans were frustrated with the lack of progress being made regarding the fate of the Euro. Prime Minster of Great Britain, David Cameron commented that “for the first time in some time we have actually seen steps … to get ahead of the game.”

French President, François Hollande called the progress “a comprehensive and coherent agreement,” while also adding, “the euro zone cannot remain in the state that it is.”

The agreement has already started to reap some positive effects. European stocks increased dramatically, reassuring Europeans that the plan in place would give vitality to the market.

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