One thing's for sure, sentiment was so sour about this 19th summit, that any bit of good news stood a decent chance of temporarily igniting the market.
You can actually credit German chancellor Angela Merkel for that sour sentiment because she repeatedly stated Germany would not give in. The latest reports suggest Germany did blink, but not enough to please Italy, Spain, and France.
The fact remains that Italy, Spain, and France all want something that is virtually impossible. They demand actions that are against the German constitution. Simply put, it's not going to happen.
Meanwhile, let's tune in to what has the futures all excited.
All Night Fight
Please consider the Financial Times report Eurozone officials in all-night aid fight
German officials gave their clearest indication to date that they were prepared to intervene to shore up Italian and Spanish borrowing costs, saying eurozone leaders should use existing powers with their €440bn rescue fund for short-term help.That certainly isn't much.
After weeks of insisting they would not budge on short-term measures, the sudden German acquiescence led to a flurry of activity in Brussels, where EU leaders gathered for the latest in a series of high-stakes summits intended to solve the crisis.
Unexpectedly, senior officials from all 17 eurozone finance ministries met on the sidelines of the summit to weigh emergency plans for Rome and Madrid which focused on using the rescue fund to buy Italian and Spanish bonds to reverse the recent spike in yields.
Indeed this next snip seems far more meaningful in a negative sense.
The political stakes for Mr Monti also rose on Thursday. Giorgio Napolitano, the Italian president and a strong Monti backer, said that political support for his technocratic government was slipping – an implicit warning to European leaders that Mr Monti needed to return from Brussels with assistance.Euro Surges After EU Leaders Renounce Seniority
“Conflicts and political polemics among the forces that support this government are increasing,” Mr Napolitano said a written statement.
Since the Financial Times does not have the rest of the story, let's look elsewhere.
In a move that will put still more risk on German taxpayers, and also what likely has the futures market excited (until the next problem hits), Euro Rises After EU Leaders Renounce Spain Loan Seniority reports Bloomberg.
The euro surged the most this year after European leaders agreed to drop the condition that emergency loans to Spanish banks give their governments preferred creditor status.No Problems Solved
In isolation, renouncing seniority is certainly net positive for bond yields in Spain and Italy. However, it does not solve a single structural problem. Moreover, that move it is certain to raise ire of some in Germany and Finland who will have to bear the risk.
If this is all the summit produces (other then the expected fluff to agree to agree to do something five years from now), expect whatever gains (if any) that come from this maneuver to be fleeting.
Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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