New EU pact: The devil will be in the detail
So the Eurozone debt crisis has been resolved after yesterday’s EU summit? Maybe, but not likely.
Yesterday’s meeting of EU leaders aimed at solving Europe’s debt crisis looked on the face of it to be more cordial, workman-like and certainly lacklustre than the last few which were overshadowed by numerous spats, notably between Britain and its EU partners.
And the initial market reaction seems to have reflected the mood depicted among the media on Tuesday morning with the Euro up a few notches and European shares rising slightly on news from Brussels. But nothing dramatic.
But we have been here before. 17 times in fact, only for the markets to digest the details of what was agreed in Brussels and plummet.
And despite the optimism expressed in the post-summit press conferences, MHP Sources Say the same cracks and political divisions remain among the various factions.
"They didn’t kiss and make up and suddenly become one happy family overnight," one Source said.
"It was a face-saving exercise. But the same red lines remain."
As David Cameron said himself, the devil will be in the detail. And most of that detail will come in the form the new fiscal compact to be ratified in March.
After all we must remember that yesterday’s outcome is what we have come to expect from "informal" summits. Under the EU treaties, leaders couldn’t have agreed anything substantial anyway and must wait until a formal summit in six weeks time.
Also, like many "informal" summits, it is not what they discussed, but what they didn’t discuss that can matter most.
MHP Sources say the big elephants in the room of a Greek haircut or default and the financial transaction tax were left in the margins. They added that niggles over inter-institutional governance such as who can attend various meetings etc and protectionist rhetoric were also painted over.
Even on the new fiscal pact or treaty, they didn’t delve into any substantial discussion. The greatest movement was David Cameron supposed agreement that the 25 signatories can use the EU machinery. But even that remains open to interpretation as he stressed Britain could change its mind later if London disliked how the new pact was being implemented.
And that is what the markets will be waiting for before giving their seal of approval: "implementation and simplification".
Why? Because they have seen many previous deals take forever to come to fruition, if ever.
Secondly at the heart of this new compact is a new, robust rule book aimed at bringing national budgets into line. But the previous rulebook was broken, not just by Greece or Ireland, but Germany and France in the past. So what makes the markets believe the sovereign leopards will change their spots?
How can it work if the EU’s third largest economy in Britain is outside the club? And as a result what effect will this have on the internal market? For example, will the UK be outside the room on major decisions?
MHP Sources Say yesterday’s summit was a staging post in the run up to March, but it still left many more questions unanswered than solved.
The markets will also start to analyse what the leaders DID discuss and agree upon: a so-called strategy for growth and jobs.
Again there was little flesh on the bones of the conclusions that will spark enthusiasm in the markets once they are digested by investors.
But more significantly Brussels has been there, done that, got plenty of t-shirts but little to show from various guises of plans by Brussels to create more jobs and growth ever since the first European Commission of Jose Manuel Barroso took the helm in 2004 and their so-called "Lisbon strategy". They even went as far as to create a tripartite social summit involving the unions and major business groups, but MHP Sources Say it has merely become a talking shop and photo opportunity for both sides with little to show in concrete terms.