THE financial rescue plan for the euro zone agreed last week will profoundly change power balances - at regional and global level. Greece, for one, has lost its economic independence. As the price for halving its government debt, it will have officials from the European Union and international institutions permanently installed in Athens to supervise the asset sales and debt reduction that are the pound of flesh. Italy avoids the live-in monitors but is required to detail progress in its fiscal reforms reluctantly agreed as the price of getting a firewall against the Greek contagion.
Power has shifted even more to Germany, which has essentially set the terms of the rescue. Yet doubts hover about whether the planned €1 trillion ($1.32 trillion) European financial stability facility can be put together - Britain for one is opposing contributions from the International Monetary Fund - and even if it can be, whether it will be enough to face down the self-fulfilling pessimism of financial markets in a bearish phase.
Much will depend on the ability of the new Italian president of the European Central Bank, Mario Draghi, who starts work today, to overcome the grim Teutonic preoccupation with inflation and moral hazard he inherits from his predecessors at the Frankfurt-based institution. Many analysts feel the dangers of a euro-zone break-up and prolonged economic depression are so clear that these concerns should be downgraded, and the bank follow its US, British and Japanese counterparts in quantitative easing - printing euros, in effect, by massive purchases of bonds issued by European governments.
Without this back-up, the stabilisation fund may buy only a little time. The ''bazooka'' aimed at the Mediterranean debt crisis may need much heavier firepower. Other Europeans are begging the Germans to unleash the biggest gun. But Angela Merkel's government is refusing to allow the European Bank the scope for massive injections of funds in case the default concern shifts more critically from Greece to large economies such as Italy and Spain. She worries that this would allow big borrowers to keep spending, and get their lenders out of responsibility. Much tighter European supervision of fiscal management may be required as a companion safeguard.
The other power shift is a global one. France has directly asked China to contribute to the stabilisation fund. The sovereign wealth funds of Saudi Arabia and the Gulf states will also be tapped. Whether directly or through the IMF, traditional roles are being reversed. Though a higher degree of mutual dependency is created, it is usually the lender in an enhanced position. The days of US and European control of international agencies such as the IMF and the World Bank are numbered.
