Even leaders likely to be hazy on euro deal effect
- 29 June 2012
- From the section Europe
BRUSSELS: There are times when the decisions taken at European Union summits are so complex that even those most experienced at reporting these events admit that they are struggling to understand what it all means.
After last night, and a 14 hour negotiating session, what I wonder is how many of the leaders themselves understand what they have agreed to and how it might play out?
The journalists have reported that Spain and Italy pushed their case for emergency assistance very hard, and that in the end Germany had to agree to the idea that EU funds could be used to help them.
In practice, this means under-writing their banks, but it also involves using the EU's emergency war chest to help them manage their national or sovereign debt by buying government bonds.
Chancellor Angela Merkel, facing questions from the German press, insisted that this was no major departure since the use of these joint European funds would still be subject to existing rules and, implicitly, Berlin's veto.
But they could not help reminding her that just before coming here she told the German parliament that a system for sharing European government debt (sub-text - for Germany to pay for those southern Europeans) wouldn't happen in her lifetime.
How can the leaders be so sure that this principle has not now been breached when they have made their commitment in principle to buy government bonds without knowing how it will work?
The word in Brussels is that they have not decided whether the joint European stability funds would buy this debt when it was issued (the primary market) or from existing holders (secondary). Other details concerning how they would try to control the market in these securities are also unclear.
While much has not yet been fleshed out one thing is clear enough, that if their arrangements are not water-tight, huge movements of capital in the international markets could soon test them to destruction.
During one earlier foray into buying back bonds, the EU managed to spend 20bn euros in one week. At this rate, even the hundreds of billions assembled at such high political cost to stabilise the euro could be burnt up alarmingly quickly.
In a potentially terminal crisis for the single currency, in which the international markets were speculating against Italian or Spanish bonds, under-written by joint EU funds, would not all today's talk about safeguards be forgotten?
At that point it might be a case of pouring in more - whether it was a crisis of government debt or one in the banks of that country - or seeing the collapse of the whole financial edifice.
When I asked one Commission insider today about the ill-defined nature of this agreement to underwrite sovereign debt he told me, "That's what always happens at summits, the detail is sketched in later".
There is something in this of course, and it is why we journalists often find it so hard to answer the "will it work?" question.
In this case I wonder though whether the leaders who agreed to it have any better idea.