The 2-day EU summit may have produced some actual movement that at least gestures in the direction of better policy.
After tough all-night bargaining, European leaders appeared to salvage what had seemed to be a summit teetering toward failure by agreeing early Friday to use the continent’s bailout fund to funnel money directly to struggling banks, and in the longer term to the idea of a tighter union.
The bank decision at overnight meetings in Brussels was aimed at helping Spain, which sought a €100 billion rescue to help its troubled banks and wound up facing rising borrowing costs for the government.
European Council President Herman Van Rompuy called it a “breakthrough that banks can be recapitalized directly.”
In addition, the leaders agreed that EU countries that were following budget rules could apply for bailouts that would not come with the stringent conditions that have accompanied previous EU bailouts — a recognition, said Italian Premier Mario Monti, who pushed for the deal, of the work such countries were already doing in reforming their budgets.
I’m not really a fan of giving shots of free money to banks instead of people, but direct recapitalization is sounder and a rejection of the stringent terms to force austerity on struggling countries is a relief.
A couple other positives came out of the meeting. EU leaders agreed to a small stimulus fund of around €120 billion, to create jobs and economic growth. That’s certainly too small, but better than nothing, and an ideological rejection of austerity. In addition, the countries agreed to a single bank supervisor for the Eurozone, which is a prelude to joint deposit insurance, which could prevent “bank jogs” of the type we’ve seen. Moreover, the ability to inject funds into banks directly should lower borrowing costs for Spain and Italy, as their governments won’t be on the hook for the recapitalization. The debt will never touch the government’s books.
That agreement on a tighter fiscal union, which looked really awful to me, was only described in “building blocks” and not formal terms. That’s mainly because it included eurobonds, and Germany flatly rejected that this week.
All in all, this is a much better outcome for the EU summit than anyone expected. Things get a little less punitive for the struggling member states, and they get a bit more money to further growth. Global markets seemed to like the news.
Of course, this doesn’t mean that the clouds have lifted. The details for the eventual fiscal union, designed to “make the euro an irreversible project,” according to European Council head Herman van Rompuy, are very sketchy. And if they don’t include large fiscal transfers across governments, from the strong to the weak, then eventually, we’ll be right back here again. There’s nothing in the agreements to permanently buoy growth or deal with current account flows. And there’s still way too much appetite for austerity, in fact permanent austerity, with a tight fiscal union, where technocrats could gain control of national budgets. Governments got a win at the summit, but it’s not yet clear whether people will.




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Fuck the struggling people, huh?
That’s working out great here in the US of A, huh? We’ve got all these jobs and all this extra food and health care! Nobody hungry or sick or homeless.
Definitely ‘sounder’.
David, I’ll be the first to admit finance is not my longsuit, but unless I’m missing something, I see absolutely no difference between what’s happening with this deal and what was done here in ’08, save one:
IF the EU leadership has recognized that the euro alone does not a union make (meaning there must be a meeting of the minds on social policy), this would indeed signal an important shift. But with Frau Merkel and EU President Van Rompuy at the helm – given their ties and (unfounded) belief in the IMF – that is extremely doubtful.
I think what we’re seeing here is a bone thrown to Hollande in an effort to see if he and the rest of those calling for a basic shift back toward people-first social policy will take it. My concern – because Hollande is about as “socialist” as Obama is “progressive,” despite what he may call himself – is that he will, and that the eurozone version of triangulation has already begun.
If that’s the case, thank God (or maybe that’s “the gods”? :) for Greece. They and Ireland (and to a lesser extent Italy, Spain and Portugal) have been the primary bullshit detectors throughout this craziness, without which the elites’ final takeover in Europe would already be complete.
Well, so far so good for a change.
But then, is Merkel going to leverage diluting sovereignty out of the beleaguered countries, as in losing control over their respective budgets as a condition for more fiscal unity? There had been talk of running some nat’l budgets out of Brussels.
Exactly.
Which would mean EU leadership is doing to its weakest countries what the US has been doing to
strategically importantweak countries all over the world for 40+ years: making them financially indebted in order to keep them subservient at best, under our total domination when they refuse – whatever the human toll may be.See Confessions of an Economic Hitman.
Uh, me too. I’ve never understood this concept : the economy is bad, so very few people are spending money. Lets give lots of money to BANKS (which caused the problem) so they can lend it to struggling people, putting them further in debt. Is that about right?
Right. But then the banks don’t lend, which is what’s been happening here in the US for the last 4 years. They’re just sitting on trillions in deposits and playing in the market rather than lending to consumers.
So it’s essentially just a bridge loan to the banks to prop up their trading operations.
(Yawn)
All this does is kick the can down the road a piece. Recapitalizing banks will have ZERO economic effect, although the banks will be fat and happy, since they can continue to pocket the loot and later on demand more “recapitalization” when the cash runs out.
The pittance that passes for “stimulus” is far too small to do any good. But hey, at least it makes for a nice hedline!
Lastly, the “markets” are stupid. This is obvious from their brain-dead reaction.
Buy these “exceptional” bailouts are mounting up. But still no mutualized debt and Hollande is going to slash his budget (the target hasn’t changed an inch), despite the atmospherics. This is just a desperate move to change the headlines next week from “Huge Bank Fails” to “XXX wins Euro 2012.”
If the deal goes through, the lenders’ bonds will not be the most senior obligations of the borrowers, which was roughly the previous proposal and the reason Spain and Italy were getting squeezed out of the bond market. In other words, they get a kind of temporary bailout that at least is not guaranteed to drag the rest of their nation after it in a few months.
And there will be no viceroy or troika or whatever they were calling it, to ratchet up Frau Merkel’s austerity regime in the face of present depression. Here’s an account from BBC Newsnight (h/t Atrios) that puts more emphasis on what’s being dodged, hopefully.
Still far from a desirable policy, but enough of a breather for the work of emergency depth psychiatry to continue.
Germany has a problem -
it needs the undervalued Euro for its export growth(last 10 years growth is just about all due to exports) -
And it needs overspending growing economies in the EU to buy those exports
So countries in pain help Germany – giving a lower Euro – but countries in pain don’t buy as much from Germany.
Germany is not into cross-border, or cross street, money transfers unless the transfer helps the giver so much that they make a profit on the transaction.
I don’t see Germany doing anything generous as long as they adhere to the Austria schools confidence fairy – take more pain and call me later – approach.
So the Euro id doomed as long as Merkel in in power – and the Germans want a “give nothing to others” person in charge.
Comrade, the markets are not stupid, they are venal.
The EU’s real barriers to democracy may be overcome before Amerikka’s fake fondness for it.
Watch out, compradors!