The current economic policy preferences are oriented towards a clear exit strategy from the aid programmes. It is a matter for consideration, however, whether economic necessities will not give rise to a reorientation in the near future. Three arguments seem to suggest that transfers between the member states of the EU could increase and be perpetuated in the framework of the rescue mechanism.

- Macroeconomic stresses in the euro area will decline in the long term at best - provided that the planned economic policy coordination measures take effect. There is a long way to go before any possible reduction in macroeconomic stresses, as some of the peripheral countries probably could not manage without support.

- Mutual dependencies between the euro countries are too large - in the view of continuing stresses - to allow the prospect of a reduction in existing potential transfers. This is particularly true in view of the fact that, from 2013, the ESM will be established as a permanent crisis mechanism and - so far - no European economic policy institution has ever been dissolved without having a successor.

- The more critical the position of the recipient country, the stronger its threat potential to require further transfers, so that the systemic stability of the community is not put at risk.

A European financial equalisation, with permanent, direct and horizontal transfers, is nonetheless not on the agenda. Legal restrictions are the main reason for this, even after amendment of Art. 136 of the TFEU (Treaty on the Functioning of the European Union). This states that transfers within the EMU may only be made through a crisis mechanism that provides for conditionality. There are also legal restrictions in the national constitutions - and as a result of actions pending in the German Federal Constitutional Court. This also suggests that a European financial equalisation, with permanent, direct and horizontal allocations, is not on the long-term agenda.

Eoin Treacy's view The divergence between the high savings, surplus, low consumption core Eurozone and the low savings, deficit ridden periphery has come into particularly sharp focus as the sovereign debt selling pressure has spread from Greece, Ireland and Portugal to Spain and Italy.

Transfers of savings from the core to the periphery occurred voluntarily prior to the financial crisis as yields converged and spreads and shrank to historically low levels. The risk premium on peripheral assets appeared negligible but this assumption has proven to have been an epic mistake. Peripheral countries are now struggling to pay back the debts accrued by the financial sector over the last decade and fiscal austerity has become a crushing burden.

The process of normalising competitive economic conditions between member states will take time at best. At worst it is questionable whether peripheral countries will ever be as competitive as the core without the ability to devalue their respective currencies. Spreads of Spanish and Italian 10-yr bonds over German Bunds completed their base in 2008 and surged higher over the last few months. Returns to pre-convergence highs of at least 400 and 500 basis points respectively appear likely. However, since both countries have considerably more debt now than the last time they traded at such levels spreads may not stabilise at those levels.

The bailout for Greece announced on July 21st and the reduction of interest rates on bailout funds that went with it does not include assistance for either Spain or Italy both of whose debt dwarves that of Greece. Spreads widening for both these countries is exactly what the EU authorities wanted to avoid. It is looking increasingly likely that considerably more capital will need to be made available. Far from being delayed indefinitely, Eurozone fiscal cohesion will need to be discussed seriously sooner rather than later if the currency union is to remain intact with all members onboard.

The Italian S&P/MIB Index hit a new two-year low today and a sustained move above 20,000 would be required to question current scope for some additional downside. The Spanish IBEX looks equally weak and needs to get back above 10,000 to defray current scope for further downside.