Will Europe’s new fiscal compact have an impact?

In a column for CNN, a former economics adviser to the International Monetary Fund (IMF) argues the fiscal compact a dopted at the Brussels summit will have little impact in the short term.

Daniel Gros, currently with the Centre for European Studies asserts that the compact is not needed “to force countries bring their budget in order. The pressure from financial markets is already so strong that Italy has already implemented changes that more than satisfy the new limit given.”

In fact, adds Gros, the “true significance of this agreement in the short run is that it might provide political comfort for the German government.”

The first test of the agreement’s impact will come soon when the ratings agencies decide whether or not to follow through on their downgrade threats.

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