IS EUROPE SAVED? – AT 9:58 A.M. ET: Members of the Eurozone have approached the cliff, and stepped back. Bottom line, Germany, the strongest economic power in Europe, has caved in to the demands of weaker nations, averting a possible financial meltdown in Europe. From London's Telegraph:
Germany has today caved into demands made by Italy and Spain for immediate eurozone aid to bring down their soaring borrowing costs, sending the euro and markets higher.
On Thursday night, Italy and Spain plunged an EU summit into disarray by threatening to block “everything” unless Germany and other eurozone countries backed their demands for help.
Mario Monti, the Italian Prime Minister, celebrated the agreement, reached in the early hours of Friday, as a “very important deal for the future of the EU and the eurozone”.
He could not resist reminding Angela Merkel, the German Chancellor, that Italy had also won on the football pitch, by defeating Germany two goals to one for a place in the finals of the European Championship.
“It is a double satisfaction for Italy,” he said.
The euro spiked against the dollar after news of the deal and Asian stock markets rose sharply, with Japan's Nikkei up 1.4pc and Hong Kong's closing Hang Seng 2.2pc higher. When trading began in Europe, London's FTSE 100 climbed 1.74pc, Germany's DAX added 2.39pc and France's CAC gained 2.86pc. In Spain the IBEX jumped 4.05pc higher and Italy's FTSE MIB is up 3.07pc.
Under the deal, Spanish banks will be recapitalised directly by allowing a €100 billion EU bailout to transferred off Spain’s balance sheet after the European Central Bank takes over as the single currency’s banking supervisor at the end of the year.
The decision, taken by a meeting of eurozone leaders in the early hours of Friday morning, will be based on a move to put the ECB at the centre of a “effective single supervisory mechanism” for banks after an EU summit in December.
“We affirm that it is imperative to break the vicious circle between banks and sovereigns,” said a summit statement.
COMMENT: Does this save Europe? Only for about 10 minutes. The problems of the Eurozone go much deeper, starting with the welfare-state mentality, which has forced governments to vastly overspend to provide "services." When it comes time to paying the piper, the payers flee. And the chickens start coming home to roost.
Besides, the European economy is weak, as is ours. Without revenue from a robust economy, the problems will persist.
June 29, 2012