The much vaunted EU summit has produced exactly the same sort of result that all the previous summits have produced: a lot of hot air but very little by way of concrete results.
For all the sound and fury generated by Britain's use of a veto over potential treaty changes (it seems strange to base the use of the veto on various regulatory issues for the financial services sector, rather than the broader issue of the sovereignty of national parliaments, but never mind), the actual outcome has done little to address the immediate problems.
The ECB will not be acting as lender of last resort, there will be no collectively guaranteed Eurobonds and there is no significant expansion of the EFSF to provide funding for debtor nations. There have been some moves on the margin to allow greater involvement of the IMF but these moves are exactly that: marginal.
Once again, markets will be left to speculate about individual banks and their exposure to sovereign debt, with the likelihood of a messy Greek default in 2012 looking higher. Once again, the very same banks will be reluctant to buy more European sovereign bonds, and once again, they will focus on cutting balance sheets and shrinking lending. The likelihood of a bank collapse remain pretty high, as most banks will remain reliant on their central bank or the ECB for short-term funding support.
The EU rule changes will focus on national budget rules, but there is little detail as to enforcement and penalties for non-compliance. Bearing in mind that France & Germany were among the first to breach the original Stability and Growth Pact and one doesn't hold out much hope that "this time it's different".
Steve
e-mail: steve.davies@javelinwealth.com
contact: +65 65577186
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