Friday, June 29, 2012

EU summit result: Angie pwns Hollande, rolling train wreck continues

The press is generally treating the EU summit as some kind of success. I guess if success is reduced to the participants' managing to get through the meetings without anyone throwing their hands up and saying, "I'm outta here, we're leaving the EU, to heck with the euro", then it was a success.

Christian Rickens in Die Klügere gab nach Spiegel Online 29.06.2012 seems to indicate that French President François Hollande is now willing to proceed to have the French Parliament approve the fiscal suicide pact (Intergovernmental Treaty on Stability, Co-ordination and Governance in the Economic and Monetary Union). He had previously demanded a change in the pact to include stimulus.

The summit did agree on a spending program they are calling a stimulus package. Bloomberg News is celebrating today: Rita Nazareth and Julia Leite, Dow Poised For Best Month Since October On Europe Pact 06/29/2012; Tom Stoukas, European Stocks Surge After Leaders Ease Crisis Rules 06/29/2012. As Stoukas reports, "European Union leaders late yesterday approved a 120 billion-euro ($149 billion) plan to promote growth in the 27- nation bloc including a capital boost for the European Investment Bank."

But it's not at all clear how fast these investments will take place. And it's unlikely they are at all sufficient to push the European countries out of recessions. Rickens says that the supposed stimulus is "wenig mehr als Luftbuchungen und Hoffnungswerten" ("little more than airy accounting and hopeful values").

Catherine Bremer reporting for Reuters (EU summit success to help Hollande pass fiscal pact 06/29/2012) makes it clear that Hollande is ready to accept the fiscal suicide pact:

The agreement to allow easier bond market intervention and direct recapitalization of stricken banks by euro zone rescue funds buoyed financial markets and visibly lifted Hollande, who took a gamble by challenging German Chancellor Angela Merkel.

"I said during the presidential campaign that I wanted to renegotiate the fiscal pact to add growth and stability measures and a medium-term vision. This summit has enabled us to achieve that," said Hollande, glowing after marathon all-night talks.

"This was not France and Germany arriving with a solution, as in the past. It was France and Germany, along with others, reaching a solution. That's why it took so long and that's why it went so far."

Many had questioned Hollande's pushy diplomacy with Merkel in the weeks since his May 6 election, as he sought alliances with southern euro zone states, met German opposition leaders and openly contradicted the conservative chancellor in public.

But his bet seems to have paid off as he returns home with a broad agreement that adds "solidarity" and pro-growth measures to fiscal stringency and should be more appealing to voters and left-wing Eurosceptics than an original budget discipline pact. [my emphasis]
Angie punked him. That's the only way I can read that at this point. The fiscal suicide pact is a bad idea. If Hollande wasn't able to sidetrack that particular train toward the cliff, there's little to hope from him in terms of saving the eurozone in its current form:

Hollande said he would submit the fiscal treaty to parliament for ratification soon and analysts expect it to pass easily, with many opposition conservative likely to be on board alongside the Socialists, who have a majority in both houses.
Angie won. The future of the EU and the eurozone lost. And there's this on Hollande: "his government announcing a public spending freeze and public sector job cuts to meet its deficit reduction targets in the week before the summit." Austerity politics in face of the depression. This is an awesome level of FAIL.

The summit also approved the idea of the European Stability Mechanism (ESM), a bailout fund, providing direct assistance to private banks facing collapse. This was something insisted upon by Italy and Spain before they would approve the stimulus proposal. Angie had been insisting that such aid to private banks be financed by sovereign debt of the national governments, which would only worsen the countries' debt positions, leading to more austerity demands, thus intensifying the deadly spiral.

This looks pretty odd to me. Angie presumably wanted the stimulus, such as it is, as an EU-level version of the deal she struck with the German Social Democrats (SPD) and Greens, in which they agreed to vote for the fiscal suicide pact in exchange for a largely symbolic stimulus package. But Italy and Spain didn't think that whatever benefits might come from the stimulus package would outweigh the disadvantage of having additional national debt forced on them for bailing out banks. (Carsten Volkery, Die Nacht, in der Merkel verlor Spiegel Online 29.06.2012)

But Spain estimates it needs at least €62 billion for ailing banks right now. The new ESM deal will not allow for direct ESM assistance to banks until after the European Central Bank (ECB) and the EU come up with a more centralized process for oversight of banks, which is expected to take months and is therefore subject to further obstruction by "Frau Fritz" Merkel.

And for all talk of more aid to the banksters, the austerity programs that are strangling the economies of Greece, Ireland, Italy, Portugal and Spain are set to continue. If there's immediate relief for the eurozone actue problems here, it's not evident to me what it is from the reporting I've seen. Rebecca Christie and Jim Brunsden report for Bloomberg News in EU Banking Debate Shifts To Euro Area After Accord On Spain 06/29/2012:

French President Francois Hollande predicted that ECB supervision over euro-area banks wouldn’t be in place before year end. British Prime Minister David Cameron said “the euro- zone countries are well on the way to making the euro-zone bank, the ECB, the regulators of their banks. That will be a good outcome.”

ECB President Mario Draghi welcomed the summit’s overall conclusions and acknowledged the Brussels-based commission’s mandate to assess the ECB’s role as allowed in the treaty. Speaking to reporters today, he did not elaborate on how the commission’s proposals should take shape other than to say “all these things should be, to be credible, accompanied by strict conditionality.”
In other words, for the moment, it's another cloud of euro-babble coming out of yet another EU summit. The title's "accord on Spain" refers to the ESM agreement, which actually does not address Spain's immediate problem.

The SPD and the Greens roused themselves to criticize Angie in the Bundestag on Friday (Merkel wirbt eindringlich für ESM und Fiskalpakt Spiegel Online 29.06.2012) for not producing more substantive results from the summit. But their leverage to make her change course was voting down her fiscal suicide pact. And the SPD and Greens have already capitulated to her on that. So why would Angie care what they say about the summit?

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