The so-called fiscal compact will prove too little, too late, and will fail to achieve its goals, the bank argued yesterday.
“Given where deficits and debt currently are, and the broader growth environment, the fiscal pact is likely to fail,” the note said.
“For a number of sovereigns in the region, the journey is just too long and the broader underlying growth environment is just too lacklustre. At some point, policymakers will need to recognise this and put the region on a different path.”
The European Union summit at the end of this month is a chance for authorities to devise fresh plans to rescue the ailing single currency, the bank suggested.
Dismissing the Eurozone’s compact, JP Morgan’s hard-hitting note said that it was merely a repeat of failed previous attempts to impose fiscal discipline, such as the Maastricht treaty and Stability and Growth Pact, which was supposed to set rules for countries joining the euro.
“Even with eurobonds and a different fiscal objective, Spanish growth performance is likely to be lacklustre,” the note said, using the troubled Mediterranean state as an example of why the compact cannot work.
“This highlights the need for some additional sources of growth,” it said. “Growth could come from the measures that are likely to be contained in the growth pact; it could come from faster demand growth in the core of the euro area; it could come from structural reforms; or it could come from an easier areawide monetary stance and a sharply lower currency.”
Ireland recently held a referendum in which voters agreed to the fiscal compact, yet the measures face opposition in parliaments of many members of the single currency.