Nobody's a winner, but nobody's a loser either. EU member states have gotten what they deemed essential while giving up less critical provisions. Aafter intense negotiations, the summit agreement is the first credible resoluton that the EU has reached in its effort to save the euro.
The timing and execution of the agreement (many points need to be clarified) will determine its ultimate reach. On the political level, the summit shows that power aliances have shifted significantly. Foremost, the EU will no longer depend on the Germany-France duo.
Because Monti and Rajoy are dealing with similar problems, they have joined forces. And Hollande has taken the opportunity to lead major peripheral countries and shift the center of Europe toward France. Merkel has been left with only the suport of small Central- and Northern-European countries. But she has not lost, because Germany achieved its main goal: setting up one banking regulator to supervise all of Europe.
The seed for a federalized Europe was planted at this summit. The region is going to create a common banking supervisor that will lend more control, flexibility and transparency to the financial sector. Now, decisions about nationalized firms are not up to national governments or European central banks, but to the EU, which will soon have all control and everything that implies.
For example, the regulator will have the power to sell firms that it deems unviable. Merkel has guaranteed that euro zone will show responsibility and cohesion, develop a unified banking system where nationality is less critical than solidarity.
The project will start in six months. It will attempt to free banks from the sovereign debt burden that has weighed them down for years. The Eurogroup summit backs the region's belief in the euro's future by authorizing the flexible use of bailout funds used to buy debt from struggling countries starting in October. This is a clear mandate directed at stabilizing the markets, buying the debt through European recovery funds such as the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM). The text of the agreement does not read clearly now, but reading it unveils that the ECB backs the stability plan in principle. Greater clarity on how and from where funds stability payments will be made will do away with many doubts.
Spain will benefit from two key points that free it from a tough political battle: recapitalizing the banks directly and disallowing a majority of ESM debt payments. The direct recapitalization will not be possible if a sole supervisor is not created by year end. Meanwhile, aid for teh Spanish banking sector, which will materialize this fall, will come from the EFSF instead of the ESM once it goes into effect in January and with the sole supervisor already operating.
Merkel insists, and Draghi agrees, that if Spain and Italy are to receive aid, then they will also have to follow EU reccomendations. The Spanish government will approve a stiff budget cutbacks in two weeks and it will then know the true cost of stabilizing its economy. Some lingering issues remain afer the summit. For example, what will happen with the bank deposit guarantee or whether Spain can find its footing.
