Madrid view: no happy ending yet



Yesterday, we saw Zapatero concentrated in reading his papers before the European Council started when Merkel entered the room and directly went to see him. He stood up and then, after the usual two kisses which are due to the Spanish tradition, they had a lively exchange. It looked as if Merkel was telling Zapatero “do not believe those who say Germany is not willing to save the eurozone”.   

Apparently, Merkel has taken enough fire: from her own Parliament; from other governments, and from the European press and she is now willing to be more reassuring about Germany’s role. This is all fine, and anything done to reassure markets is welcome, but if you have already have to move twice the firewall from one place to another, from Greece to Ireland, and now to Portugal, it might well mean that there is something failing.

This is what is happening with the EFSF and the doubling of the ECB capital, you can bring more water and longer hoses to fight the fire and hopefully it will work. But once this is over we need to sit down and think more carefully about the future. People are dazzled by the turning of the EFSF into a permanent rescue mechanism and the treaty modification and the press offices from governments sell this as a major breakthrough, but the EFSF is not an European institution, but a mere intergovernmental agreement which member states could have agreed on anyway without opening the Treaty. After all, the money does not come from the EU budget, it is all loans based, and the UK is excluded (thanks guys, it´s nice to know you don´t have any interest in the eurozone).

Anyway, this is a theoretical discussion, the fund has already been there since May and has proven insufficient: making it legal and telling markets it is going to be there after 2013 is good news, but I don´t see financial markets packing up and leave because it is all over now.  

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