When I began to look at the economic conditions this morning I did not know what had been decided in Brussels.
As far as I can learn at the moment blame has been passed.
There appears to be no other result.
No solvency questions have been resolved. No liquidity questions have been resolved. No bills are paid. Without transfers of cash or credit before the middle of next week there will be catastrophic collapse.
The Euro is toast.
http://www.telegraph.co.uk/finance/financialcrisis/9364296/Debt-crisis-EU-summit-deal-a-commitment-to-the-irreversibility-of-the-euro.html
The agreements at a European Union summit in Brussels suggested Germany had yielded on its insistence on forcing tough reforms in exchange for rescue money.
That was a victory for Italy and Spain, who have argued they have done a lot to clean up their economies yet are facing rising borrowing costs.
European Council chairman Herman Van Rompuy said the aim was to create a supervisory mechanism involving the European Central Bank by the end of this year, and to break the "vicious circle" between banks and sovereign governments.
Jose Manuel Barrose, the European Commission president, said the deal was "ambitious".
"I think it is very ambitious decision that shows once again, the commitment of the member states namely those in euro area to the irreversibility of the euro and I think this will be recognised by all," he said. Perhaps our bankers need a little rebranding?
29 Jun 2012
| Comment Debt crisis live: Britain won't cede more powers to Brussels
29 Jun 2012
| 788 Comments Debt crisis: Ireland hails euro 'game changer'
29 Jun 2012
| 7 Comments King attacks 'deceitful' banking culture
29 Jun 2012
| 535 Comments Mervyn King: something has gone very wrong with UK banking
29 Jun 2012
| 16 Comments Debt crisis: Spain and Italy borrowing cost fall
The cost of borrowing for 10 years for Spain and Italy fell sharply on the eurozone bond market early on Friday after eurozone leaders agreed breakthrough measures to fight the debt crisis.29 Jun 2012
| 2 Comments EU deal a 'commitment to the irreversibility of the euro'
After a long night of negotiations, European leaders agree to funnel money directly to struggling banks, and in the longer term to form a tighter union.29 Jun 2012
| 23 Comments David Cameron hails eurozone bailout deal
Eurozone leaders have taken “important steps forward” in resolving the crisis in the single currency, David Cameron has said.29 Jun 2012
| 77 Comments Germany caves in over bond buying, bank aid
Germany has today caved into demands made by Italy and Spain for immediate eurozone aid to bring down their soaring borrowing costs.http://www.guardian.co.uk/business/debt-crisis
- 29 Jun 2012: Editorial: At last a eurozone summit has identified the problem at the heart of the crisis: not one of feckless Latin spending but feckless banks 6 comments
- 29 Jun 2012: It's been a strange week in Cyprus, which learnt of its vital €10bn bailout just days before it assumes presidency of the EU 1 comment
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Poll, 29 Jun 2012: An EU summit on the debt crisis appears to have averted disaster, at least temporarily. Does the outcome make you more confident about the region's economic future?
23 comments - 29 Jun 2012: Prime minister, buoyed by successful negotiations on eurozone banking reform, rejects "in or out" referendum on EU
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Cartoon, 29 Jun 2012: Speaking at the end of eurozone talks in Brussels, David Cameron urges change in British banking culture
27 comments -
29 Jun 2012: The Bank of England governor tells UK banks that contingency against a worsening crisis should take priority over dividends 7 comments
- 29 Jun 2012: Ian Traynor: The German chancellor lost this week's EU summit battle, but she will continue to dictate the terms of the war
- 29 Jun 2012: Arts badly hit by demise of traditional savings banks which have been the main sponsors of culture in Spain
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29 Jun 2012: Italy and Spain stunned Germany by blocking progress until they obtained softer bailout rules in 14 hours of bad-tempered talks
- 29 Jun 2012: EU leaders salvage summit in early hours as Angela Merkel appears to yield on tough reforms in exchange for rescue money
- 29 Jun 2012: Italy and Spain block endorsement of 'growth pact' unless measures are introduced to soften terms on financial assistance
"Rather like that bottle of milk lying on your doorstep today, eurozone bailouts have a short shelf life. The ill-tempered deal hatched in the small hours of Friday morning in Brussels may, however, have stumbled across a longer-life formula. Not because of the recipe, which is still to be haggled over – if anyone in Spain thinks that Germany has just written a blank cheque for its insolvent banks, they should think again. But because of one political fact that shone through Angela Merkel's multiple concessions: faced with a binary choice of walking away from monetary union and letting it collapse or doing something to hold it together, if enough pressure is put on her, she will stick with the euro.
The impetus for the deal came from an unusual source. Not from a French socialist with an anti-austerity mandate but from an Italian technocrat and a Spanish conservative who have already wielded the knife. Merkel was told if she did not do something to stop the high interest rates on Italian bonds, or to ease Madrid's borrowing costs, which were teetering on the edge of the affordable, both Italy and Spain would block the modest growth package the summit intended to announce. Mario Monti did not need the new terms of the bailout he and Mariano Rajoy forced Germany to agree to – that money would be injected directly into the banks with no corresponding increase in national debt; that private creditors would enjoy the same status as the bailout fund in the event of debt rescheduling; that Italy and Spain would get the money without having to impose new austerity conditions. What Monti needed was a change in direction. As he put it, the eurozone's "mental block" had been broken. Thus the first line of the summit's statement starts from a new premise – affirming the need to break the vicious circle between banking and sovereign debt. It has taken long enough for the penny to drop but at last a eurozone summit has identified the problem at the heart of the crisis: not one of feckless Latin spending but feckless banks. These banks no longer need provisional liquidity. They are insolvent and need serious amounts of hard cash.
Merkel may have lost this battle, as the German press only too quickly pointed out, but she almost certainly has not lost the war. If the rulebook has yet to be written about establishing a new banking union, a supervisory authority for the eurozone, the Germans will make sure they will write it. Every change to the European Stability Mechanism (ESM) will have to go through the Bundestag and parliament is not the final hurdle. Ratification requires approval by the constitutional court, which may yet in the wake of the summit be bombarded by petitions from politicians. The court could yet decide the transfer of powers are such that it requires a change in the constitution and Germany's first national post-war referendum. There are no shortage of political opportunities there for Merkel to row back on the broad commitments given in a summit gone bad for her.
Quite apart from her long war, there is no shortage of questions to be asked about the finer detail. The markets may have responded, but is there enough in the kitty for a Spanish bailout? Almost certainly not. The Spanish property market is still in collapse, as are the value of their bank loans. Nothing in the bailout addresses the Spanish economy. The property market may not recover for a decade; if so, the banks will continue to be sick, and Europe's fourth-largest economy will languish. But there is another country affected by the deal: ours. Not being a euro-member, Britain left Brussels early. David Cameron has made it clear he will be less a player than a heckler in these summits. But however remote, the possibility of a European banking union – with the City as a spivvy, low-regulation zone left exposed outside its limits – should be one that gives him and the rest of us pause."
The impetus for the deal came from an unusual source. Not from a French socialist with an anti-austerity mandate but from an Italian technocrat and a Spanish conservative who have already wielded the knife. Merkel was told if she did not do something to stop the high interest rates on Italian bonds, or to ease Madrid's borrowing costs, which were teetering on the edge of the affordable, both Italy and Spain would block the modest growth package the summit intended to announce. Mario Monti did not need the new terms of the bailout he and Mariano Rajoy forced Germany to agree to – that money would be injected directly into the banks with no corresponding increase in national debt; that private creditors would enjoy the same status as the bailout fund in the event of debt rescheduling; that Italy and Spain would get the money without having to impose new austerity conditions. What Monti needed was a change in direction. As he put it, the eurozone's "mental block" had been broken. Thus the first line of the summit's statement starts from a new premise – affirming the need to break the vicious circle between banking and sovereign debt. It has taken long enough for the penny to drop but at last a eurozone summit has identified the problem at the heart of the crisis: not one of feckless Latin spending but feckless banks. These banks no longer need provisional liquidity. They are insolvent and need serious amounts of hard cash.
Merkel may have lost this battle, as the German press only too quickly pointed out, but she almost certainly has not lost the war. If the rulebook has yet to be written about establishing a new banking union, a supervisory authority for the eurozone, the Germans will make sure they will write it. Every change to the European Stability Mechanism (ESM) will have to go through the Bundestag and parliament is not the final hurdle. Ratification requires approval by the constitutional court, which may yet in the wake of the summit be bombarded by petitions from politicians. The court could yet decide the transfer of powers are such that it requires a change in the constitution and Germany's first national post-war referendum. There are no shortage of political opportunities there for Merkel to row back on the broad commitments given in a summit gone bad for her.
Quite apart from her long war, there is no shortage of questions to be asked about the finer detail. The markets may have responded, but is there enough in the kitty for a Spanish bailout? Almost certainly not. The Spanish property market is still in collapse, as are the value of their bank loans. Nothing in the bailout addresses the Spanish economy. The property market may not recover for a decade; if so, the banks will continue to be sick, and Europe's fourth-largest economy will languish. But there is another country affected by the deal: ours. Not being a euro-member, Britain left Brussels early. David Cameron has made it clear he will be less a player than a heckler in these summits. But however remote, the possibility of a European banking union – with the City as a spivvy, low-regulation zone left exposed outside its limits – should be one that gives him and the rest of us pause."
Zero hedge is a bunch of gold buggers.
Europe's Unanswered Questions
The EU summit to save the Euro (the nineteenth, or thereabouts) has, quite remarkably, agreed to do something to try and save the Euro. The whole build-up and conclusion to this summit have brought a sense of nostalgia to some observers; the disillusionment in advance, the insistence by national leaders that absolutely nothing would be sacrificed, the dervish-like spinning of “informed sources” and unnamed officials, the late-night brinkmanship, and then the highly personal process of striking a deal amongst heads of government.
Paul Donavan, UBS: [excepted from] One money, one banking system, one fiscal policy?
Going into this summit we had a monetary union in Europe that clearly did not work. Coming out of this summit we have a monetary union that still does not work.
As ever with a Euro summit there are unanswered questions. Grandiose statements are what heads of government specialise in – the details are left to later (it is one of the reasons why Maastricht produced a monetary union that was flawed from the outset. Once “create a single currency” had been agreed, politicians lost interest). The statement from the summit itself was woefully inadequate, and most of the details have been fleshed out with press conference statements. Doubtless more details will be forthcoming as heads of government return to their own countries and brief their local media on how they “won” in Brussels. So what additional questions need to be answered?
- Will the bank supervisor have real powers? In particular will the bank regulator be able to close down banks, even if those banks are national champions? They should have this power, otherwise the threats that they can make are going to be largely impotent. Ultimately, we would need to see the regulator able to force changes to banks even if they have not asked for capital injections (as happens in every other functioning monetary union). Are Euro area nations prepared to surrender their sovereignty to the extent that “foreigners close our banks / foreclose our mortgages”?
- Chancellor Merkel of Germany has declared that there must be conditions for direct bank recapitalisation. This does not, perhaps, occasion much surprise in financial markets as Chancellor Merkel of Germany is very keen on conditions. But how are these to be imposed? There needs to be a set of “standing conditions”, rather than case-by-case conditions, if the mechanism is to work properly – per the need for an apolitical capital injection process, outlined above.
- What about those countries that have already bailed out banks with Euro area assistance? Assuming that direct recapitalisation does not take place before the end of this year, that list is Greece, Ireland, Portugal, Spain and Cyprus (countries that have or will have used EFSF money to bail out their banking systems). Other countries have bailed out their banks with national funds. Where does the process stop? This is absolutely critical to resolve, and of course has a huge potential impact on sovereign bond markets (because it impacts individual sovereign debt to GDP considerations).
- Who guarantees deposits? This has not been clarified. If deposits are guaranteed nationally, but the banking regulator is supranational, why should a domestic sovereign have to bear the cost (deposit insurance) of a decision (close a bank) that is taken at a supranational level. However there is obviously a cost burden to guaranteeing banks’ deposits at a pan Euro level – and the question “why is our tax money being used to guarantee lax foreign banks’ depositors?” is bound to arise.
A healthy dose of economists’ cynicism is probably best taken at this point. Money market normalisation is likely to take more than a high-flying statement from the Euro area to resolve. As such, the economic effectiveness of liquidity injections is likely to remain low (to nil).
I will look again late.
I am coming to realize that aesthetics as a developmental field died a century ago.
The first world war did not kill it though it marks its grave.
The long slide starts about 1840 after a peak in the late eighteenth century.
I will have to think more about that peak. It is not a period I know well.
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