Like a bad mini-series, the European non-events events just keep rolling on in. Here are the latest ones.
From the Financial Times, leaders failed to create a new treaty.
Leaders of the European Union’s 27 countries failed to agree to change the EU’s treaties in order to implement tighter fiscal rules and instead chose to create a new intergovernmental treaty which will likely have less teeth and be negotiated only among 23 of the bloc’s members.
Despite the division – which will leave Britain and Hungary out of the new pact, with the Czech Republic and Sweden still weighing participation – Mario Draghi, the European Central Bank president, signalled his approval, a key vote of confidence that could allow the ECB to move more aggressively in eurozone bond markets.
"This is a summit that will go down in history," said Sarkozy. "We would have preferred a reform of the treaties among 27. That wasn't possible given the position of our British friends. And so it will be through an intergovernmental treaty of 17, but open to others."
What they came up with instead is some sort of vague fiscal compact, which seems to imply the oversight over national budgets but it''s pretty mealy mouthed. Supposedly it's an international treaty among 23 countries. If annual budgets exceed 3% of GDP, potential sanctions can come rolling it. Looks like austerity on steroids. Below is Reuters Summary of the agreement:
- Euro zone states' budgets should be balanced or in surplus; this principle will be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5 percent of GDP.
- Such a rule will also be introduced in euro zone member states' own national legal systems; they must report national debt issuance plans in advance.
- As soon as a euro member state is in breach of the three percent deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of euro states is opposed.
- The European Stability Mechanism (ESM), the euro zone's permanent bailout fund, is aimed to enter into force in July 2012; the existing European Financial Stability Facility (EFSF) will remain active until mid-2013. The overall ceiling of the EFSF/ESM of 500 billion euros will be reviewed in March 2012.
- Euro area and other EU states will confirm within 10 days the provision of funds to the IMF of up to 200 billion euros in the form of bilateral loans to help it deal with the crisis.
- Voting rules in the ESM will be changed to allow decisions by qualified majority of 85 percent in emergencies, although that remains subject to confirmation by the Finnish parliament.
Additionally the EU added €200 billion to their bail out fund.
As Naked Capitalism notes, the European bank stress tests came out smelling just a little too rosy and now the ECB says banks need to raise €113 billion.
One result of the EU summit is to make sure private investors are protected:
The leaders also agreed that private sector lenders to euro zone nations would not automatically face losses, as had been the plan in the event of another future bailout. When Greece’s debt was finally restructured, the private sector suffered, making investors more anxious about other vulnerable economies.
So, it looks like the Eurozone, at least is going to have some sort of say in national budgets, making sure austerity happens, in spite of the people revolting, plus they are making sure no banks or super rich have to take a hair cut on any sovereign debt. As a result, odds are we're going to see TARP and ECB loans, aka the Fed loans, European style.
Lovely. Yeah, the markets yawned or opened down.