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ORIGINAL (7:47 AM EDT): EU leaders will meet in Brussels later today in their latest “informal” summit on the euro crisis.Two issues will likely dominate the talks: Greece and eurobonds.
While all eyes are on Greece right now, we’re unlikely to see any tangible progress towards managing the situation there while European leaders wait on repeat elections in Greece. They will likely reiterate warnings that these elections are a referendum on Greek membership in the euro, even as many Greek leaders continue to insist that its European supporters have room to compromise on the harsh austerity measures that are part of the second bailout.
The debate on eurobonds is likely to prove more interesting. As we’ve previously mentioned, there are multiple forms these bonds could take, some of which are more likely than others.
Analysts at Bank of America Merrill Lynch point out that common sovereign bonds—in which stronger countries guarantee the debts of others—are more likely to face resistance from Germany but go farther towards restoring tranquility in the euro area. Then again, leaders might be more willing to consent wide issuance of bonds backed by the full eurozone or European Union to fund future EU-wide projects undertaken by the European Investment Bank or the European Commission. The FT has reported that such issuance might amount to €230 million.
Arguments over eurobonds will likely test the relationship between French President Francois Hollande and German Chancellor Angela Merkel. The success (or lack thereof) of these discussions will provide insight into the tense partnership between the two leaders, one that reporters are already calling “Merde.”
Last but not least, concerns about the Spanish banking system are likely to be discussed. While plans for the Spanish government to bail out some of the countries banks have already begun, EU leaders will likely discuss the feasibility of the European Financial Stability Facility—or its successor, the European Stability Mechanism—devoting monetary support to bank recapitalization.
UPDATE (12:27 PM EDT): Merkel has confirmed that EU leaders won’t decide anything today, according to Bloomberg.
She reiterated her resistance to eurobonds, arguing that they would not bolster growth in the euro area. She told reporters that the summit will focus on growth, but that leaders will “only exchange options” at the meeting today.