Two years, nearly to the day, after Greece's credit rating suffered the first big cut to BBB+ , even as it continued to insist it would not default on its huge external debt, the European Union has again failed to address the increasing divergence in the fortunes of the members of the Eurozone.
The official bailouts have helped to refinance the maturing debt of Greece, Irland and Portugal, but these and other countries have received little real debt relief in the form debt restructuring and longer tenors.
The Eurozone crisis cannot hope to touch bottom until:
1. The overleveraged European bank creditors are properly recapitalized, from official national sources if need be.
2. Then the banks can agree to restructure and refinance the maturing external debt of the deficit countries and even provide for new export financing, in counterpart to their domestic austerity measures.
3. With some material debt relief, the overleveraged debtor countries can then hope to begin to workout the excess debt burden
4. Ultimately, Current Account imbalances within the Eurozone have to be sharply reduced, inverting the divergence of the Euro decade.
In this context, the endless discussion of one more budget rule, or one more Treaty, which can be ignored, misapplied or gamed as happenned with the Maastricht convergence criteria, may be great political theatre but will not resolve the Eurozone's problems.
See Debt Workout 101, and testing the Limits of Divergence