Three years after the Greek debt crisis first emerged, and five bailouts later, EU leaders met in Brussels at the end of June for the 20th crisis summit of the current series. It must have been a tetchy gathering, not least because the British prime minister attended and was keen to offer his advice to Euroland heads of government.
The battle lines were drawn with Germany, Finland and the Netherlands in the hardball team (austerity, austerity, austerity) facing Spain, France and Italy and most of the others on what was assumed to be the fluffy side (give us a break, you're killing us). The reality turned out to be somewhat different.
M/s Rajoy, Hollande and Monti made clear - or so we must assume from the result and subsequent rumours - that they were united in their demand that the bailout support for Spain should go direct to the troubled banks for whom it was intended. Mariano Rajoy was not prepared to pollute his country's balance sheet with bailout money simply to provide the German chancellor with a bigger target to shoot at. The money was for ailing banks and that was where it must go. Directly. Apparently the three flatly refused to agree to any deal which failed to respect that point of view.
They won. By morning Chancellor Merkel had put her name to an outline agreement along those lines. What investors are waiting to see now is the flesh on the very bare bones of the agreement. Until they do, the suspicion will remain that there is no substance to the deal, that it is just another of the many "agreements" struck over the last two years that turned to smoke once the lid was lifted.
It has had one concrete result though. By way of a reward to the politicians, the European Central Bank has made its own concession to Euroland growth by lowering the benchmark Refinancing interest rate to 0.75%, its lowest ever level. Moreover, it has reduced to zero the rate it pays for deposits from euro area banks. The purpose of that is to remove any incentive for banks to their park surplus money at the ECB.
It remains to be seen whether the measures will stimulate the flow of cash through the economy or just make the region's banks more unprofitable. But the ECB has produced the promised carrot: now the onus is back on the politicians to crack on with their bailout agreement. This story will run and run.
The battle lines were drawn with Germany, Finland and the Netherlands in the hardball team (austerity, austerity, austerity) facing Spain, France and Italy and most of the others on what was assumed to be the fluffy side (give us a break, you're killing us). The reality turned out to be somewhat different.
M/s Rajoy, Hollande and Monti made clear - or so we must assume from the result and subsequent rumours - that they were united in their demand that the bailout support for Spain should go direct to the troubled banks for whom it was intended. Mariano Rajoy was not prepared to pollute his country's balance sheet with bailout money simply to provide the German chancellor with a bigger target to shoot at. The money was for ailing banks and that was where it must go. Directly. Apparently the three flatly refused to agree to any deal which failed to respect that point of view.
They won. By morning Chancellor Merkel had put her name to an outline agreement along those lines. What investors are waiting to see now is the flesh on the very bare bones of the agreement. Until they do, the suspicion will remain that there is no substance to the deal, that it is just another of the many "agreements" struck over the last two years that turned to smoke once the lid was lifted.
It has had one concrete result though. By way of a reward to the politicians, the European Central Bank has made its own concession to Euroland growth by lowering the benchmark Refinancing interest rate to 0.75%, its lowest ever level. Moreover, it has reduced to zero the rate it pays for deposits from euro area banks. The purpose of that is to remove any incentive for banks to their park surplus money at the ECB.
It remains to be seen whether the measures will stimulate the flow of cash through the economy or just make the region's banks more unprofitable. But the ECB has produced the promised carrot: now the onus is back on the politicians to crack on with their bailout agreement. This story will run and run.