The mainstream media refers to the latest Euro Summit press release as a compromise, when it is merely a face-saving announcement to maintain the status quo.
From my post yesterday,
when an agreement has been reached on a banking supervisor, it will contain these elements and money to pay for them
- A joint depository insurance scheme
- The type of institution to be regulated
- A set of rules
- An implementation schedule
- A way to legally allow countries outside the eurozone to participate in an ECB-led banking union
- A plan to deal with banks that are already in trouble or have been bailed out.
If you do not have all of these elements, you do not have a banking union no matter the spin.
What the summit did accomplish was a vague announcement that either faction can use to appease their domestic constituents. As long as progress is being made, the markets should remain in their present calm states.
A rift has developed between the core and the periphery; note which side France has chosen. If you analyze France’s present fiscal condition, it actually appears to be worse that Italy’s. France’s economy is in similar shape, and it has a higher budget deficit. For some reason, markets are treating France like a core member when the economic and fiscal signs show otherwise.
As an aspiring member of the periphery, France wants what they want- free money. Germany does not wish to give its cash away, so it insists on the periphery fulfilling nearly impossible conditions so that it can endlessly delay opening its wallet.
There is an upcoming election in Germany, and the last thing that Merkel needs is voter backlash over these endless bailouts. I do not think that Germany will commit to any large sums between now the elections.
This rules out a banking union before 2014. If Hollande was hoping that the ESM would bail out its overleveraged banks, he should think again. Merkel is adamant that a banking union will not cover legacy liabilities.
The German politicians know that huge amounts of cash will be required to save the euro, but they have neglected to tell their voters. I think that Germany is attempting to couple cash needs with a closer political union.
After referendums failed in France and the Netherlands seven years ago on this very question, this does not seem to be a winning strategy. With all the money at stake, you never know.