In spite of all the headlines and chatter the real winner in the latest of 19 EU summits was none other than German Chancellor Angela Merkel. First lets take a look at numerous headlines that got the story wrong.
Merkel Big Loser
Reuters reports Merkel seen as big loser in euro zone showdown.
Newspapers in Spain, Italy and France on Saturday toasted the triumph of their leaders - Mario Monti, Mariano Rajoy and Francois Hollande - in pushing Merkel into a U-turn that would long have been unthinkable.Hollande Big Winner
Even German newspapers said Merkel had been made to accept demands for the euro zone rescue fund to be able to inject aid directly into stricken banks from next year and intervene on bond markets to support troubled member states.
"There's no doubt about it - the chancellor was blindsided at the euro summit," wrote influential columnist Nikolaus Blome of Bild, a daily with 12 million readers.
"Merkel caves in - money for ailing banks," read the headline on Germany's left-leaning Sueddeutsche Zeitung.
Bild wrote: "Italy and Spain got what they wanted: It'll be easier to borrow excessively again... It was the first time in more than two crisis years that euro states didn't follow Germany's orders."
A Bloomberg video proclaims Hollande Emerges as Leader at EU Summit
Double Satisfaction For Italy
The Financial Times says Rajoy real winner despite Monti delight
“It is a double satisfaction for Italy,” said Mario Monti, a reference to both Italy’s victory over Germany in the European football championships and his outflanking of the German chancellor, Angela Merkel, forcing her to agree emergency measures she had for months said she would not accept.No Winners or Losers
But for all of Mr Monti’s chest-beating, the real winner in the early-morning deal was not the courtly economist. It was his Spanish counterpart, Mariano Rajoy.
For the first time since the outbreak of the crisis two years ago, a huge and some would say inevitable bailout of Spain’s teetering domestic banking sector, stuffed with bad real estate investments – will no longer be Madrid’s responsibility.
Getting closer to the truth (in an attempt to ruffle no feathers as opposed to careful analysis) EU President Herman Van Rompuy says No Winners or Losers in EU Summit Clash
Summit discussions between European Union and eurozone leaders ended with no winners or losers Friday, EU President Herman Van Rompuy insisted, after a clash was resolved between Italy and Spain on one side, and Germany on the other.Real Victor is Merkel
Madrid secured a change in the terms of an upcoming eurozone-funded bank rescue, while Rome obtained a "mechanism" to reduce the borrowing costs of countries that are cleaning up their economies, but still face market pressure.
"It was a tough negotiation, it took hours - certainly yesterday - and you can't summarize this in winners and losers," Van Rompuy said, referring to discussions that dragged until 4:30 am (0230 GMT) on Friday.
I have read dozens of articles all proclaiming someone or other (or no one, or multiple people a winner).
Having read all those viewpoints, the best analysis of all of them is Financial Times columnist Wolfgang Münchau who says The real victor in Brussels was Merkel
Let's tune in.
Mario Monti faced down the German chancellor and won the battle. He will survive a few more weeks or months in politics. It was clever of him to threaten a veto on something Angela Merkel badly needed. He had her in the corner. It was an example of classic EU diplomacy.Brick Wall of Reality
But this was only the foreground spectacle. If you look behind the curtain, you will find that, for Italy at least, nothing has changed at all.
Mr Monti may have secured the right kind of deal politically but to solve the ESM’s size problem he really should have insisted on a banking licence. With that, the ESM could have leveraged its lending ceiling to a more realistic level. It will not be able to do this now.
The deal on Spain was marginally better – on paper. But it, too, is not what it seems. I see three obstacles:
1. A mandate to inject equity into the banks will be conditional on a political agreement for joint banking supervision. This is where Ms Merkel can still exact her revenge. Do not expect this to proceed easily. A joint system of banking would be a very big deal, and I doubt that a sensible agreement can be agreed by October.
2. Direct bank recapitalisations may require a change in the ESM treaty. I know this point is disputed. EU officials say they can do it by diktat. But I cannot see how one can conceivably let the ESM inject equity into banks directly when the treaty says specifically that the ESM lends money to member states for that purpose. Would the treaty not have mentioned this important detail? The head of the Bundestag’s budget committee also seems to think that a treaty change is now needed.
3. The new facility is still constrained by the same overall funding limits of the ESM as the bond purchases. I believe the Spanish banks will ultimately need a lot more than the €100bn earmarked for this programme once you take into account the effects of both the housing crash and the depression. The ESM is seriously overloaded.
The most important event last week was probably not the agreement at the summit anyway, but the statement by Ms Merkel that there will be no eurozone bonds “for as long as I live”.
If Ms Merkel is right and there are no eurozone bonds in her lifetime, the eurozone will not survive. Without eurozone bonds or a change in ECB policy, Italy’s and Spain’s debt – and eurozone membership – is not sustainable. That was as true on Wednesday as it is today.
I have criticized Münchau on numerous occasions but he has this nailed. I especially like his conclusion. My only quibble with the article is his statement "Monti should have insisted on a banking licence".
This is where ideology comes into play.
Münchau knows damn well that Merkel cannot give into such a demand without a German referendum, yet he keeps banging his wishes into the brick wall of reality because that is what he believes is best for Europe.
I disagree about what is best. The point is debatable. What is not debatable is Münchau and others keep ignoring real constraints on Merkel, expecting - sometimes demanding - she do something she cannot do.
Regardless, except for a single misguided sentence, Münchau made a sterling case for who really won in Brussels.
Merkel Plays Hollande, Monti, Media, Even Bloggers, Like a Fiddle
By purposely making antagonistic statements such as "no eurozone bonds in my lifetime", statements Merkel had to know would get trumped up in the media (and were), she set expectations for the summit, not at ground level, but rather 35 feet underground.
Expectations were so low that Hollande and Rajoy felt like winners coming out of the summit.
The irony is Monti won nothing at all while proclaiming "double satisfaction".
Rajoy at least got something, but numerous obstacles remain. Hollande was a sideshow at best.
Let's see what the bond market looks like a month from now, and six months from now before jumping to conclusions. Meanwhile, Merkel took a soft blow to her reputation at home.
Eventually these blows will matter, but this blow was the bare minimum anyone could have expected. The blow only looks significant because of purposeful media-manipulating statements ahead of the summit.
The real battles are still ahead because the summit solved virtually nothing.
Mike "Mish" Shedlock
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