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The Tragedy of the Euro Fiscal Commons

By Kristin Moyer | December 09, 2011 | 0 Comments

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Contributed by David Furlonger

As announced on the BBC (and other media outlets) today: Euro crisis: Eurozone deal reached without UK it appears on the surface as if consensus has been reached between many Eurozone countries on addressing the crisis. All but the UK whose current leader believes such a deal is not in the UKs best interest.  Tweets on #euro (from presumably UK “supporters”) seem to back this view. Indeed the Chairman of Tullett Prebon was quoted with no little irony as saying “UK as isolated as someone left on the dock in Southampton as the Titanic sailed away.“ Yet, it should not be forgotten that the UK banks are still exposed to euro debt: Revealed: UK banks’ exposure to eurozone debt

Even if Mrs Merkel believes that the “Eu has learned from its [past] mistakes”, I think it is a very long shot to believe that all is now rosy in the euro garden.

Whether the goal of fiscal union (one of the scenarios in upcoming Gartner research) can be achieved or evenly partially manifest in a tax and budget pact remains to be seen. Mr Sarkozy and Mrs Merkel have certainly bought time – at least politically. However, the markets do not usually play by politically oriented rules or indeed politicians’ time lines (memories of the ECU/EMU come to mind). Indeed, it won’t have escaped the market’s attention that yet more money (lending) is promised as part of this deal.

 Perhaps more importantly, and from a long-term perspective, the tragedy of the commons has not been addressed – rather this announcement from Brussels seems to reinforce it. There is a great article yesterday in the Hoover Institution Journal: The Euro & The Tragedy of the Commons that neatly explains the challenge before Europe, and indeed the US and its own debt crisis.

So, should CIOs and senior corporate executives (and the public) breathe easier? No! This situation is not resolved – at least not until amended treaty ratification occurs (and that is extremely uncertain), which is unlikely before March. Scenario planning remains an essential tool to uncover the implications and outcomes facing organizations and governments.

It is critical therefore that clients refer to Gartner research over the coming weeks to gain a better understanding on how to manage through this crisis: CIOs Should Address the Impacts of the Euro Crisis on Their Enterprises Now, as well as attend the January 19th webinar on this topic: Euro Crisis Webinar.

We will also be releasing the results of our survey: Euro Crisis Survey over the next few weeks as clients reveal their contingency plans.

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