The latest, delivered by the euro area heads of state is long on details for a new fiscal compact – a beefed up stability and growth pact that they promise will be better than the one they all broke so nonchalantly in the first decade of the single currency – but short on details of how to avoid financial calamity in the weeks ahead.
It starts with a declaration of bold determination.
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And then immediately undercuts it.
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So the governments will deem their budgets to be in surplus even when they are in deficit.
Politicians don’t have much credibility with investors.
These normally amusing inconsistencies aren’t funny anymore. They diminish what little remains. Perhaps feeling the need to sound more assertive, the euro area heads of state resort to the written equivalent of shouting at markets: the dreaded bold type.
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This may be a vain attempt to go back in time and correct a failure that has already triggered a financial market crisis in the single currency area, but it at last sounds serious.
But then comes the inevitable concession:
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The contorted wording springs from the delicate political niceties of pushing all this through. But the language merely reminds investors of doubts over political implementation: what bond and equity buyers call execution risk. What are the chances all these initiatives pass through Europe’s national political processes? Maybe 50%?
The markets are more interested in how policymakers intend to deal with the stresses in government bond markets right now. Here the heads of state had less to offer beyond an agreement to speed up the start of the European Stability Mechanism to July 2012 and run it in tandem with the EFSF to an overall maximum capacity of €500 billion: so no big bazooka there. The European states, led by the bigger economies, will together advance €200 billion to the IMF which it will then have available to lend back to the weaker European states.
Does any of this give the markets what they want?
Euromoney speaks to Alexander Friedman, chief investment officer of UBS Wealth Management (who has close to $800 billion under management):
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It remains to be seen if that has been delivered.
The ECB announced on Thursday further extraordinary steps to prop up euro area banks, with long-term funding against questionable collateral, so potentially propping up the banks that prop up the governments, while not lending to the governments directly. Is that enough?
Friedman says:
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The circuitous route to mutualizing the debt partially through increased funding to the IMF doesn’t impress.
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On Friday morning Italian and Spanish bond yields, having rallied hard in the run up to the summit were rising once more