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Sunday, July 1

1st Jul - EU Summit Special

Big linkfest to coverage of the latest summit to end all summits. EDIT: later additions to this are at the bottom of the post.

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The eurozone crisis and the curse of the small printalphaville / FT
Eurointelligence’s morning briefing asks some questions

Some EU deal pessimism…alphaville / FT
Comments from several banks after the first day

One more Summit: The crisis rolls
Charles Wyplosz: The EU Summit produced a vaguely word agreement that can and has been read in different ways in different nations. This column provides a quick reaction to what was and was not decided. It concludes that useful progress was made, but this was far from the decisive turn-around that many had hoped for. The crisis will continue to unfold in the months ahead.

Monti's Uprising: How Italy and Spain Defeated Merkel at EU SummitSpiegel
Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions. But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks.

Did Mrs Merkel really concede that much? Kiron Sarkar / The Big Picture
I have been cynical/sceptical for some time now, but I really do believe that we have an initial basis to progress to some form of resolution. Its not going to be a straight line, but the move towards EZ fiscal, banking and political union remains unbroken.

Satyajit Das: “Super Brussels” Saves The World, Again, Maybe! naked capitalism
Despite progress, European leaders refuse to acknowledge that a portion of the debt of the peripheral nations is unrecoverable. None of steps announced improves the sustainability of the debt levels of the affected countries, their access to markets or cost of borrowing in the medium to long term. Ultimately, it is not possible to solve the problem of excessive indebtedness with more debt or by simply changing the lender.

Curb Your Enthusiasm: The EU Summit Fell ShortThe Atlantic
In any event, the critical issue is not the ESM's rules of procedure, which can be tweaked on the fly given sufficient consensus, but once more the financial capacity of the ESM, which is harder to fudge. When Merkel gives way on that, it might be time to celebrate.

More questions than answers after the summitGavyn Davies / FT
The summit has given the ESM some new tasks, but no new money with which to discharge these tasks.  And many details are obscure.

EU Summit: Some Good Progress, But Any Game Changers?economistmeg
All of the measures agreed will likely help on the margins, which has not always been the case at previous EU summits, and some of the measures could be important first steps towards a fiscal and banking union. However, next steps towards a banking and fiscal union will be extremely difficult—and in some cases impossible—to agree, so expect the EZ rollercoaster to continue this summer.

Germany still holds the key. Sober Look
Despite the summit agreement, it will be a while before the ESM is authorized to buy Italian bonds.

Was Merkel's Surprising "Defeat" Merely A Gambit For A German Referendum?ZH
In other words, was Merkel's surprising "defeat" on Thursday just a brilliant gambit to get her off the hook, and let the people decide where the chips may fall? It wouldn't be the first time Germany has fooled Europe about its true motives.

Leaders take one step away from the edge Danske Bank (pdf)
Market expectations were very low going into the meeting  and this time the political leaders managed to deliver more than expected in the market. Despite a substantial difference in opinion between Germany on one side and Italy, Spain and France on the other, Italy’s Mario Monti managed to persuade Germany to support short-term measures.

Buy on the NewsEconomix / NYT
There is a pattern here. Barclays counts 18 European summit meetings since the beginning of 2010, before this one; decisions seeming to indicate action were announced after 10. Barclays notes that global markets tend to react positively, but the reaction typically fades.

EU summit deal leaves many questions openAnalysis / euobserver
The EU summit has failed to produce a big step towards a political and economic union, say analysts, with measures adopted to help out Spain and Italy seen as "palliative" and vague plans to establish a central banking supervision

Ambitious in the end – but policymakers should forsake summer holidaysbruegel
On the whole this is an ambitious outcome. Two challenges will now have to be faced. One is technical: to agree on the various dimensions of banking union and to come up with a credible proposal within a very short time frame. The other one is political: even informed public opinion in the member countries is totally unprepared to what this new policy regime may mean.

Yet another “break- or-make” summitbruegel
I am not sure, how the Bundestag will react on the matter in the ratification process of the ESM. See FAZ on the matter. It is unclear what PCS as enshrined in the ESM treaty means when the ESM gets to do equity injections into banks.

Laughable Text of EU "Memorandum of Understanding"; ESM Not Been Ratified Yet Already Requires Changes; How Much ESM Firepower Is There?Mish’s
For now, the market is pleased with this non-breakthrough. Let's see how long it lasts. I suspect not long.

The EU Summit: Europe Needs Capital NOT Political PosturingGains Pains
1) The benefits of the announcements (lower yields on sovereign bonds and higher share prices in EU banks) will be short-lived. 2) None of these decisions address the core issues facing the EU banking system: namely, insolvency and excessive leverage. 3) No one in the EU actually has the money to make these measures work (again, Spain and Italy will provide 30% of the ESM’s funding).

Are we heading for a 'half-Europe'?Opinion / euobserver
Crisis rescue programs and the next seven-year EU budget have political implications that go beyond economics.

The Good Bad and Ugly from the European Council
Very nice!

What Must Be Done Now to Save the Euro?Economix / NYT
Perhaps agreement on this long-term plan will provide political cover for Germany to support the short-term measures required now: broader uses for Europe’s rescue funds, the issuing of euro bonds, more aggressive measures by the European Central Bank and a significant growth pact.

A real plan to allow the emergency funds to recapitalise banks directly, thereby weakening the nasty link between bank confidence and sovereign solvency, would indeed be a significant step forward. We'll see if it's seen through to the end without major steps backward.

Cornered by other Eurozone leaders, Merkel concedesSober Look
Overall the market reaction may be premature. There is nothing final about these agreements and they do not get at the heart of the problems of run on banks and investors' ability to absorb more sovereign debt

Welcome to the Banking UnionResearch Ahead

German concessions trigger epic Euro squeezeSaxo Bank
A bit too early to tell, let’s see what the German spin is on the summit outcome today and how the market behaves next week, which very well may include an ECB rate cut. My inclination is to believe that this move could last between a day to two weeks rather than on the scale of the summer holiday.

Did the EU summit… actually succeed?Wonkblog / WP
One major problem? The European bailout funds don’t have unlimited resources. If they throw $125 billion at Spain’s banks and another couple hundred billion toward Italy, pretty soon they’ll be running low. The only entity with unlimited euros is the European Central Bank. And right now, there’s no talk of using the ECB to provide bailouts. Which means that this latest move might have just forestalled the crisis, rather than ending it permanently.

The EU Council—An Initial AppraisalPIIE
The key political issue is that with the surrender of national sovereignty implied in both the agreement on banking integration and the adherence by Spain and Italy to a “shadow IMF program, both the ECB and ESM (e.g., the German and other Northern governments) will accept these types of support interventions. One should expect relatively few details to be provided about these interventions (at least in real time) because of the obvious political sensitivity—the desire to fly under the radar screen, avoiding parliamentary hassles and public inquiries.

What They Really Said: Key Soundbites From Last Night's EurosummitZH

We’ve Seen This Horror Movie BeforeMarketBeat / WSJ
Enjoy the rally, book some profits, go have a nice little BBQ this weekend, but don’t think you won’t find yourself back here in a four months, or three, or two, or the week after next worrying about same exact things again.

As Europe Moves To An "E-TARP", Goldman Is Selling Spanish, Italian And Irish Bonds To Its ClientsZH
“We recommend being long an equally-weighted basket of benchmark 5-year Spanish, Irish and Italian government bonds, currently yielding 5.9% on average, for a target of 4.5% and tight stop loss on a close at 6.5%.”

The Big Blink?Testosterone Pit
So, here are the summit results on these items: Eurobonds: nein. A banking union with tools to prop up banks and with a common deposit insurance fund: nein. Allowing the ECB to buy sovereign bonds directly: aber nein! They did agree on a common banking regulator (even Merkel had wanted that). Of course, they already have one

Barclays On The Rally: "Fade It", Because The Summit Is "Not A Game-Changer For The EUR"ZH

Europe's Unanswered QuestionsZH
UBS: Going into this summit we had a monetary union in Europe that clearly did not work. Coming out of this summit we have a monetary union that still does not work… As ever with a Euro summit there are unanswered questions. Grandiose statements are what heads of government specialise in – the details are left to later

Hardball In BrusselsMark Grant / ZH
In the final analysis Europe is quite exposed at this moment and may be for quite some time. The ESM, after the change in seniority status, must be re-affirmed in at least two countries that are the Netherlands and Finland and Germany has not yet approved it yet either. The EFSF has already spent $450 of its capacity on Greece, Ireland, Portugal and now $125 billion for Spain. The balance left in the fund is tissue paper thin and that is all that is in existence presently for any more problems in Europe.

Update 2-July
Europe and Yogi BerraDavid Kotok / The Big Picture
European leaders have finally determined something that was apparent to everyone for years.  Now comes the difficult part: how to implement a euro zone-wide banking system…Merkel agreed to give up something she did not have in order to achieve the continuation of austerity requirements in the southern countries.  She agreed not to press for the two tiered seniority pledge.

EU summit aftermathMacroScope / Reuters
None of the above means that the summit results should be dismissed, it’s just more of the theme we’ve seen for two years. Germany and others have moved, presumably because they remain deeply concerned, but incrementally in a way that may bring some calm but in no way gets ahead of the crisis.

EU Summit: Bono's back from the edge...Saxo Bank
The outcome of the EU summit was undeniably a positive, particularly in comparison to previous summits, but as the dust settles the markets will have to decide whether the announced measures are enough. Sadly, in my opinion, they are not.

Who Was The Real Victor in Brussels? Pension Pulse

Finland, Netherlands Oppose EU's Bond-Buying Plan WSJ

It’s an ESMergencyalphaville / FT
Finland and the Netherlands own around 1.8 per cent and 5.7 per cent of shares in the ESM according to Annex II. It isn’t close to the more than 15 per cent stake which they’d need to block ‘emergency’ bond-buying.

Euro Crisis: 366 Days Later PragCap
A look back at the “Greece is saved”, LTRO1 and LTRO2 rallies: It is important to understand that the “agreement” reached last week was nothing more than political posturing and is, as usual, long on hope and short on details.

The Failure Of The FirewallMark Grant / ZH
Europe has placed its full concentration on the totally wrong aspect of the problem which has been to ward off the evil spirits of the bond vigilantes instead of on fixing the financial problems of the nations and so the problems continue and worsen…We also learned over the weekend that various takes on the Summit were not all the same as Ms. Merkel’s version differed significantly from the Spanish tale.

The Terrible Cost of Inaction in Europe PIIE
The European leaders this time have offered a more hopeful approach than in the past in both form and substance, but Europe could still be headed in the wrong direction unless the ECB builds an appropriate bridge on the structure of the decisions taken at the June summit and the political process implements those decisions comprehensively and expeditiously.

A Banking Union Baby StepProject Syndicate
Daniel Gros: This incremental approach has worked well in the past; indeed, today’s European Union resulted from it. But a financial crisis does not give policymakers the time that they once had to explain to voters why one step required another. They will have to walk much more quickly to save the euro.

Europe’s bank recapitalisation: The creation of a new stigma?Saxo Bank

Why the EU summit decisions may destabilise government bond
Paul De Grauwe: Among the questions still remaining since last week’s summit of European leaders is whether the new measures will stabilise government bond markets. This column’s answer is ‘no’.

Update 3-July
Analysis: Sharing a vision may be Europe's biggest challengeReuters
It's 2025 and Angela Merkel, Europe's first democratically elected president, is reviewing a crowded agenda for the new session of the increasingly powerful European Parliament.

Successful summit didn’t solve crisisHugo Dixon / Reuters
Europe’s people are not ready for full political union. So the best solution would be to keep the loss of sovereignty and debt-sharing down to the minimum. But the summit kicked these big issues into touch.

EU Summit Winner Was MerkelMish’s

What the EU agreed last week, what it did not and what happens nexteuobserver

Update 4-July

Winning the Summit but Losing the War; Merkel Coalition About to Splinter Over Creation of "European Monster State"Mish’s

The IMF and the rest of The World: edging (further) off the eurozone stageThe World / FT

The “European Monster StateTestosterone Pit
Rather than solving the Eurozone debt crisis once and for all, the EU summit last week gummed up the bailout process with controversy in the very country that everyone is counting on to save the Eurozone, Germany—but also elsewhere—and nothing has been resolved.

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