This post-summit market boost was even shorter than usual. Disregarding the circus of Britain’s walk-out, markets rallied briefly on Friday after 26 European Union members agreed in principle to a treaty enshrining tighter bounds on national fiscal sovereignty. This week, however, stock and bond prices are falling, and the political unity-but-one quietly unravelling.
It has quickly become apparent both that the details of the supposedly agreed treaty are vague, and that whatever people think may be agreed will not go down in member states without resistance. Several non-euro states are peeling off. In Germany, the Bundesbank had already expressed displeasure at the idea of funnelling central bank money to the eurozone periphery through the International Monetary Fund – and Frankfurt now insists on parliamentary backing.
Observers should feel conflicted about whether to hope for success. The treaty’s contours are foggy, but its core provision – to submit some national budget authority to Brussels with the force of international law – will not solve a crisis that remains one of self-fulfilling runs on sovereign debt, not of incontrovertible insolvency. To the extent that the treaty adds anything to the sanctions on economic indiscipline already being put into EU law, the additional rigidity could even be harmful.