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Updated: September 8, 2012 08:19 IST

Summits galore but Europeans’ woes still at peak

Vaiju Naravane
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“It’s always too little, too late,” complained Anna Navarro-Pedro, a journalist with Portugal’s leading newsmagazine Visao commenting on the European Central Bank (ECB) President, Mario Draghi’s “controversial but courageous” decision to go on an “unlimited” bond buying spree to save the Euro.

On Thursday Mr. Draghi announced the ECB would undertake Outright Monetary Transactions (OMTs), that would “enable us to address severe distortions in government bond markets” and provide a “fully effective backstop to avoid destructive scenarios”. Under no circumstances would the Euro be allowed to sink. “The euro is irreversible,” Mr. Draghi said.

“This decision should have been taken two years ago. In the meantime, old people are dying in Portugal, Spain and other hard-hit European countries because of the hardship caused by the debt servicing problem,” said Ms. Anna Navarro-Pedro.

The journalist, who is an outspoken critic of the Portuguese austerity plan that has resulted, she claims, in the death of hundreds of old and vulnerable persons, has been the target of attack with the government allegedly seeking to force her to resign.

“I have said it before and I say it again, people have lost their electricity connections since they are unable to pay. Their pensions have been cut and they have reduced their food intake and in the next decade we shall see that public health and longevity have been hit very very hard,” Ms. Navarro-Pedro told The Hindu.

Her comments were borne out by a report published recently by Nils Muižnieks, Commissioner for Human Rights, at the Council of Europe who said “the government should strengthen its efforts to mitigate the negative impact of the financial crisis, in particular on children, elderly and the Roma”. Child poverty is on the rise in Portugal. The combination of growing unemployment and cuts in salaries, increased taxes and reduced social and unemployment benefits has resulted in reduced incomes and growing poverty among many Portuguese families. Evictions as a result of non-payment of mortgages have also had a particularly negative impact on children’s rights.

Adverse effects

The elderly are adversely affected by the fiscal austerity measures as well. “The freezing of pensions and cuts in social benefits, together with the hike in prices of health care, public transportation, gas, electricity and food products have led to deterioration in the living conditions of elderly persons with low incomes, especially those residing in isolated rural areas.”

Violence towards the elderly has increased and almost 40 per cent of the elderly population in Portugal has reportedly suffered abuse within the family.

Throughout this period, the European Union and the euro zone countries in particular have made timid efforts in summit after summit, to deal piecemeal with first the crisis in Greece, followed by Portugal, Spain, Ireland and Italy.

Now, for the first time Mario Draghi, the head of the European Central Bank, the ECB, has taken firm steps to reassure markets and stop the run on the Euro by announcing that the Bank will henceforth buy treasury bonds directly from governments, thus guaranteeing sovereign debt. Earlier the bank could only loan to private banks who would then loan to governments. Mr. Draghi who has been nicknamed “Supermario” in his native Italy said his programme would “provide a fully effective backstop” to troubled European economies.

European markets soared as a result, touching six month highs in certain bourses on the continent. Eurozone stock markets rose to a six-month high, led by Spain’s Ibex, which soared 4.9pc, and Italy’s MIB, which closed up 4.3pc. The French CAC rose 3pc; Germany’s Dax ended up 2.9pc, while in London the FTSE climbed 2.1pc. US markets followed suit, with the S&P 500 closing at its highest since January 2008 and Nasdaq ending the session at its highest since December 2000. Spanish, Italian and Portuguese borrowing costs were pulled sharply lower.

Many economic analysts described the measure as “bold courageous and the true firewall that was so desperately needed.”

Mr. Draghi said the ECB could buy “unlimited” bonds adding that the bank was sure it was “acting within our mandate. Action in the primary market would be a violation, not [in the] secondary market.”

Fierce opposition

There was fierce opposition on the ECB’s governing council from the German member, Jens Weideman. However, Mr. Draghi said the ECB would only agree to buy the bonds of those countries that agreed to reform and reduce debt – which translates as concurrent austerity measures.

While Mr. Draghi’s decision was hailed a courageous and the “right thing, finally” in France Italy and Spain, German newspapers heaped opprobrium on Mr. Draghi calling him “irresponsible”.

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