LONDON — It took long enough, but the basic outline of a deal on the euro was agreed by leaders of the 17 euro zone nations this morning at 4:00 a.m. Brussels time.
It was as advertised in my primer yesterday:
Private banks will take a 50 percent haircut on the Greek bonds they hold, which amounts to about a third of the total Greek debt outstanding. Banks will recapitalize themselves via fund-raising issues and the IMF. The European Financial Stability Facility — which started with 440 billion euros and now has about 250 billion available after Greek, Portugues and Irish bailouts — will insure future sovereign bond issues to the tune of 20 percent. By a miracle of computation, that means that the fund has leveraged itself by a factor of 5 to 1.25 trillion Euros. (Honestly, I need to do that same trick with my salary ... )
"This is a marathon, not a sprint, "said Jose Manuel Barroso, president of the European Commission, the administrative arm of the EU. The race has only just begun. Heartbreak Hill — agreeing a euro-wide fiscal policy and other steps towards federalism — is nowhere on the horizon.
There will be a lot of domestic politicking to make that happen. Yesterday, German Chancellor Angela Merkel gave a taste of the rhetoric necessary to convince people to give up some national sovereignty to make federal integration happen. She told the Bundestag - before flying to Brussels - "Nobody should take for granted another 50 years of peace and prosperity in Europe ... that's why I say: If the euro fails, Europe fails."
She continued, "We have a historical obligation: To protect by all means Europe's unification process begun by our forefathers after centuries of hatred and blood spill. None of us can foresee what the consequences would be if we were to fail."
A professional life-time of watching EU negotiations has taught me that these summit agreements leave plenty of ticking time bombs for the future in their fine print. We will have to wait and see what's in this one.
Something that leaps out is from a report in the Daily Telegraph "Spain would undertake more austerity measures, including labor market reform."
How do you reform a labor market when there is already 21 percent unemployment, 40 percent among those under 25?
That brings up the biggest shortfall in this agreement: there is no pro-active attempt to move the euro zone towards growth, which is the best way to get people to work and paying taxes so that debt obligations can be met.
On Another Subject (kind of related to growth):
Giles Fraser, canon of St. Paul's Cathedral, is expected to resign today. London's Occupy protest has been headquartered on St.Paul's front steps for two weeks. A tent city housing no more than a few hundred people is set up there.
The Cathedral shut its doors last week for the first time since the Blitz because of "health and safety" issues raised by the encampment — a laughable over-reaction that actually brought the Occupiers much publicity.
Anyway, Canon Fraser's departure underlines differences with the more conservative dean of the cathedral over the protest.
It is odd that the protesters chose to camp at St. Paul's. If they walk a hundred yards down Ludgate Hill and then 75 yards up Fleet Street they will get to the London headquarters of Goldman Sachs. Surely the folks who work there are the ones the Occupiers want to feel the heat of their protest, not tourists trying to visit Sir Christopher Wren's great cathedral.