A “cathartic event” forcing policy makers to make tough decisions sooner rather than later would accelerate European economic recovery, Aladdin Capital Management’s chief economist has claimed.

Constance Hunter has highlighted that without drastic change being enforced on European policy to combat the financial crisis, current fiscal and monetary policies will not be enough to improve the current situation.

She highlighted three events that would force policy makers to bring about the necessary changes. Bank failures were highlighted as potentially bringing about the most impact, as the European Central Bank does not have a mechanism to take over failed financial institutions. The second most impactful event could be delivered via a German electorate that votes for politicians who opposed aiding the European Union’s economically beleaguered countries.

“The reality is that decisions may not be made in the European Commission’s offices in Brussels, but on the streets of Munich and Bonn,” Hunter added.

The third event would be if European Central Bank members decline to extend credit by purchasing country bonds.

“The paradox is that Europe needs growth at a time when it is imposing austerity measures that are hampering growth. The problem is that current policies could allow Europe to muddle through in the same way that Japan has been able to muddle through,” Hunter commented.

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