Chronic Pain for the Euro

VIENNA — The deal on Friday in Brussels to reformulate the rules of the euro zone has probably saved the shared currency for now — but there may be less to it than meets the eye. At least four major issues still need to be resolved: how much money is needed to protect Italy now from speculative attack; whether banks will stumble because of the crisis; the isolation of Britain, which does not belong to the euro zone; and not least, whether the Brussels cure, prescribed by Germany, fits the disease.

With mounds of European debt due to be refinanced early next year, the crisis is far from over. “More tests will obviously come, and soon,” perhaps as early as the opening of financial markets on Monday, said Joschka Fischer, the former German foreign minister.

And there are risks remaining even in getting the Brussels deal ratified, which is likely to take until late summer 2012 at the soonest.

The European stock markets had slipped by midmorning on Monday and, in a potentially ominous sign, Moody’s Investors Service said it could downgrade the sovereign ratings of some European Union countries in coming months, adding that the crisis remained at a “critical and volatile stage.”

The agreement, under which the 17 countries that use the euro accept more oversight and control of national budgets by the European Union, “was a big step, which was pushed on the Europeans by the markets,” Mr. Fischer said. He has been sharply critical of what he considers Chancellor Angela Merkel’s hesitant, slow and incremental management of the crisis, but he said that “in the end, the markets have limited the options of the political leaders, especially of Merkel, and pushed her into giving more support for the euro.”

Germany got nearly unanimous agreement on a treaty to pursue its favored remedy for the sovereign-debt crisis that has shaken the union for months: fiscal discipline, central oversight and sanctions on countries that break the rules about debt limits, which will be written into national laws. The rules themselves are not new: they recap the ceilings set in Maastricht 20 years ago when the euro was created, with deficits limited to 3 percent of gross domestic product and cumulative debt eventually held to 60 percent of G.D.P. Now, though, those formulas will have teeth.

The idea is that, with the new fiscal discipline in place, the Germans and the European Central Bank will be willing to do more to solve the euro zone’s troubles.

But many argue that the core problem is less discipline than the lack of economic growth and the deep current-account imbalances — exporters versus importers — within the euro zone. Austerity tends to bring recession, not growth, and Europe needs growth to cope with its debt. But structural changes and investments to accelerate growth and competitiveness generally take years to bear fruit.

“The relationship between 3 percent and fiscal vulnerability is a weak one,” said Jean Pisani-Ferry, director of Bruegel, an economic research institution in Brussels. Both Spain and Ireland have run balanced budgets, or even budget surpluses, in recent years, and both were well within the Maastricht criteria, but became speculative targets in the credit crisis anyway; Italy has one of the lowest budget deficits in the euro zone, and runs a primary surplus, meaning that its budget is in the black when debt service is discounted.

“The countries were not in crisis because of bad management of their budget,” said Jean-Paul Fitoussi, professor of economics at the Institute of Political Studies in Paris. He called the Brussels deal “rather disappointing over all, since it means that there will be more rigor, more austerity, which means less growth ahead.”

The issue is how to promote economic growth and competitiveness in the poorer countries at the euro zone’s periphery that ran up large debts and trade deficits. “You need discipline as part of your stabilization strategy, but we also need a much stronger growth strategy for the southern countries,” including Italy, Mr. Fischer said.

Bernard Avishai, a contributing editor of the Harvard Business Review, said that the questions now should be: “Under what scenarios are the southern economies most likely to grow? Who will be starting, owning and profiting from what businesses? In that context, would not Spain, Portugal, Greece, et cetera, be better off with their own currencies? Would they not become more competitive if they could simply devalue them?”

His answer to that last question is no: A globalized, networked economy requires a stable currency, he said. Inside the euro or out, he said, the real competitors for countries like Greece and Portugal are Poland, Hungary and Romania, and to thrive they need to remain part of the European economic space and invest in education and high technology to attract more capital from abroad.

“The path to development is not devalued money in the hinterland, but intellectual capital from the metropole,” Mr. Avishai said. “The key is not cheap labor but rich brainpower, the climate that will cause globals to inject the DNA of various businesses into the commercial life of southern European states.”