An informal summit of EU leaders yesterday produced little headway, particularly towards addressing the summit’s stated focus: jobs and growth. In fact, much of the day was spent resolving infighting betweeen EU leaders in the wake of a German proposal to strip Greece of budget control, according to Der Spiegel.While the fiscal compact EU leaders agreed to sign yesterday may be a step in a positive direction (admittedly this is arguable), if yesterday’s meeting is any indication then EU leaders will continue to dither on policy that would resolve the issues behind the sovereign debt crisis so long as the pressure is off.
Italian and Spanish borrowing costs have fallen dramatically since the European Central Bank offered unlimited funding at ridiculously cheap rates back in December, driving investor confidence that the banking sector was not on the brink of collapse.
However, the ECB cannot and will not lead the charge alone. Consensus remains that pressure on sovereign borrowing will return slowly after the next ECB LTRO—it’s not a matter of if but when.
And that’s probably a good thing. Given EU leaders continued bickering, and their discussions of crisis solutions that are simply too small to amount to a real “firewall” around the likes of Italy and Spain, it’s clear they’re going to need some prodding in order to adopt a stronger stance on how to save the euro.
Let’s see if ECB President Mario Draghi lets them feel the pain after next month’s important LTRO is over.