You have to remember that this pact will change nothing. Most of the troubled countries will not be able to abide my the lending to GDP ratio’s, now or in the distant future. Germany will not bail out Italy, Eurobonds are out.
The Germans, when you read their news sites, are 100% convinced that reducing lending to German levels (which are very high actually) is the SOLUTION. They are perplexed by S&P downgrading threat ‘we have a small GDP-to-debt ratio and a large trade surplus’ failing to understand that rating is about the probability of default, not debt level. And Germany is going to have to make a choice, take on the debt or see exports fall; either way Germany is not a good bet from the outside view.
There isn’t going to 23 countries in this pact, maybe 10 who can make the grade, the rest will be part of it in theory – being to borrow at a slightly reduced rate but at a disadvantage to the core members. These will be the slow speed Europe, mainly the PIIGS.
Ironically I think non-Euro countries will be far more eligible for new core Euro membership becuase they are in control of their own currency. And Germany, get your debt level down to Poland’s <55% level, you profligate over spenders 🙂
Seems the researchers agree with me.
For those of us of a certain age, the fiscal language looks to be copied and pasted from the original Stability and Growth Pact with a few bells and whistles added to imply that ‘this time we mean it.’ – Steven Englander, Citigroup
Germany’s chancellor speaks.
RTRS -GERMANY’S MERKEL SAYS VERY SATISFIED AT AGREEMENT AT EURO SUMMIT, SAYS NOT A LOUSY COMPROMISE
RTRS -MERKEL SAYS VERY SATISFIED WITH SUMMIT DECISIONS, WORLD WILL SEE EU HAS LEARNED FROM MISTAKES
Don’t anyone laugh.
And a point made by Nomura’s Desmond Supple about a treaty of seventeen, versus the treaty of twenty-seven vetoed by the UK:
The EU may pursue a separate treaty for the EU17, but again this does not appear to be a viable solution. It is hard to envisage countries adhering to two binding Treaties and the concerns which prevented a full EU 27 Treaty change are still present for the EU 17: Finnish (small country) concerns over majority voting, Ireland’s concerns over the corporate tax rates and possible Irish concerns that it could not impose a transaction tax if the UK did not. Realistically, an EU 17 Treaty may just be a non-binding commitment to change with some longer-term hopes of Treaty change.
Terry Smith of Tullett Prebon puts it a bit more pithily (H/T Pawelmorski):
UK as isolated as someone left on the dock in Southampton as the Titanic sailed away