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It was grim deadlock at the EU Summit in Brussels last night, as Italy and Spain refused to let an overall deal progress until receiving guarantees the eurozone would act to cut soaring borrowing costs.
European stock markets rose sharply this morning on the surprise news Germany had agreed to new, less Draconian bail-out measures.
Spain and Italy’s refusal to let the meeting proceed until changes were made eventually forced Germany’s hand, after 14 hours of tense negotiations.
Key to the deal is the axing of the current, national debt-inflating requirement for bail-out loans to go through goverments. Instead, a new banking supervisory body run the the European Central Bank is to be set up by the end of the year, at which time a new permanent bail-out fund – the European Stablility Mechanism – will be able to recapitalise failing banks directly.
Under plans being mooted, the new banking regime will entail pooling eurozone liability for guaranteeing savers’ deposits and a common resolution fund for winding up ‘bad banks’.
Germany remains strongly opposed to measures which see shared liability with other nations.
Hermann Groehe, general secretary of her Christian Democratic Union said German Chancellor Angela Merkel had last night at least succeeded in fending off the establishment of euro bonds.
“The fact that Angela Merkel, supported by other countries, successfully averted that is good for Germany as a stability anchor and good for Europe,” he said.
