Waiting game for euro crisis

Protesters dressed as German Chancellor Angela Merkel and French President Nicolas Sarkozy Image copyright AFP
Image caption How long will it take for the real Angela Merkel and Nicolas Sarkozy to come to an agreement?

I am on a Eurostar to Brussels. My train is delayed - but as it turns out, that grand solution to the eurozone's problems will be delayed as well.

All eyes were on this Sunday's summit of European heads. Now they are partly on that, and partly on Wednesday's follow-up summit, announced last night by France and Germany.

Those of us who have watched this crisis lurch from one "crunch-point" to the next will surely not be expecting Wednesday to be the final word.

In the past it has taken less than a week for the holes in past agreements to "save" the euro to become apparent to investors and everyone else. Plenty of time, then, to have another crisis of confidence in Europe's leaders, before the G20 summit in Cannes at the start of November.

We know where the key disagreement lies - and where it stems from. France wants to have the European Central Bank at the centre of any effort to increase the firepower of the bailout facility, the EFSF. Germany does not.

Germany wants bondholders to face much steeper "haircuts" on Greek debt. France does not - in part because of what it might mean for some politically important French banks.

I explained why this was all so difficult for Germany in a post after the Washington meetings last month, amid all that excitement around a "plan for the euro".

The basic problem outlined in that article has not gone away: Germany does not want to let investors off the hook, or give unconditional support to countries whose past policies it disapproves of. Even if, like Italy, these countries are now facing more of a liquidity problem than a solvency one.

By now, the Germans realise this is probably unavoidable. But if that support has to be given, at least it should be a matter for national governments - not the ECB.

The French argument - which the British and Americans agree with - is that the financial firewall around Greece must above all be credible. It is unlikely to be credible if it does not, indirectly or directly, tap the resources of the ECB. And, incidentally, the bigger the haircuts on Greek debt, the bigger the firewall might need to be.

Anything else is second or third best, and inherently unstable, because you will continue to have the problem that the resources dry up, just when they are needed most.

Why? Because countries who need the EFSF cannot also finance it. I have not met many inside financial institutions who think "partially insured" sovereign debt will be something they want to buy.

The bank capital issue will be resolved at an EU level by finance ministers on Saturday. But how, exactly, the bank recapitalisations are achieved, and most of the other features of this much-delayed breakthrough agreement to save the euro are still up for grabs.