GENEVA — Can anything stop the euro’s decline? With the single currency facing the biggest crisis of its existence, European governments this month thrashed out a $1 trillion bailout for struggling member states.
Market reaction was cool; the euro sank last week to a four- year low against the dollar before recovering somewhat, and European stock markets have taken a battering.
On Friday, after another round of tense meetings, European Union finance ministers promised new punishments for countries such as Greece that threaten the continent’s solvency with fiscal imbalance.
But many fear this will be too little to end the crisis. If hundreds of billions of euros in loan guarantees failed to stabilize markets, it appears unlikely that the prospect of a lengthy EU move toward fiscal reform will do the trick.
“The markets are trading in real time, while the politicians are moving in bureaucratic time,” said Mark Cliffe, chief economist at ING Group. “We’re promised something maybe in October — that’s a . . . long time in the financial markets’ eyes.”
The EU’s woes, triggered by Greece’s admission in October that it was sitting on a destabilizing 12.7 percent budget deficit, have shattered confidence in the euro, which has lost about 20 percent of its value in recent months.
While the markets responded with immediate alarm, euro-zone leaders struggled to agree on a rescue package. Many in northern European countries such as Germany resented having to pay for what they saw as the profligacy of other member states.
Late Friday, European finance ministers backed the tough-sounding idea of sanctions against countries that run up too much debt. But it was unclear how severe they would be, or how quickly they could be introduced.
EU leaders are expected to decide on long-term reforms at an October summit. There is little time for another bout of handwringing, after months of EU dithering over the bailout package contributed to market unease.
The European crisis is both a continuation and an extension of the financial and economic turmoil that has ravaged much of the world over the past three years. But whereas China is now raising growth predictions, and Congress is moving ahead with reforms of Wall Street, European governments are mired in debate over how to regulate themselves.
The concern is universal because a euro-zone plunge back into recession could slow the recovery elsewhere.
European stock markets stabilized somewhat Friday after the German Parliament approved the bailout plan — to which it is the largest contributor. France is due to vote on the euro-zone bailout by May 31, but neither Spain nor Italy has set a deadline to authorize it.
And investors remain unconvinced that indebted euro-zone governments will be able to pay their debts. Those fears have sent the prices of government bonds plummeting, and many of them are held by big banks in Germany and France whose losses could set off a new credit crisis.
Still, the EU has beat the odds before. The bloc has survived numerous soul-searching setbacks in its integration process over the past decade, which it hoped to end with last year’s Lisbon Treaty.
