It looks like eurocrats in Europe have taken the "deal with it tomorrow" action plan, which Larra applied to the old-fashioned Spanish bureaucracy. Tonight the EU is holding an extra summit at a critical moment for the entire euro zone. Once again the meeting runs the risk of upsetting expectations and European leaders not providing the answers that are needed.
As the Italian and Spanish risk premiums dropped off significantly and bond rates fell to 6.08% yesterday, markets showed their need for positive news and that the summit could reach some important agreements. But it looks like that won't be the case, because yesterday the EU indicated that the most important decisions will be put off until June 28.
The slowed pace of any EU initiative to come out of the summit will not help to calm the markets, which will cause risk premiums and interest rates to go back up, irritate European citizens and, what's worst of all, postpone the "shock therapy" that countries like ours are being asked to undergo. Specifically, the ECB should take action and the European recovery fund should be enacted to help financial institutions.
Instead, we could see a small, pilot project to release 230 million euros in eurobonds in order to finance infrastructure projects, which aren't necessary or important for generating growth when the primary goal is to clean up the financial sector. The banks and member states have made an effort to clean up their balance sheets and the sector at-large, but these efforts are going up against doubts about whether the euro will survive and when the European Central Bank will arrive on the scene to help, while in Brussels, EU members are holding group therapy sessions.
