Saturday, October 29, 2011

Next Act—The Plan Is Put to Test

Wall Street Journal
October 29, 2011

Will it work?

The deal euro-zone leaders hammered out in the early hours of Thursday sparked a world-wide stock rally. But the market moves belied widespread caution about the accord among economists and analysts—and even some of the decision-makers in the debt crisis.

Many pointed out the summit announcements lacked critical details that must be hashed out in the weeks and months ahead, and then put into effect. "The implementation challenge is as high, if not higher, than the design challenge," Mohamed El-Erian, chief executive of Pimco, which runs the world's largest bond fund, warned in an interview.

Others were pessimistic on the fundamentals, arguing that neither the deal to cut Greece's debt by 50% nor the plan to boost the firepower of the euro zone's bailout fund, known as the European Financial Stability Facility, or EFSF, would be enough to quell Europe's torrid debt crisis.

Only the European Central Bank's continued support of the region's bond markets can prevent an eventual further downward lurch in confidence, many argued. Some analysts saw the deal's lack of measures to boost economic growth as an Achilles' heel.


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