Italy surprised everyone with a 2-1 victory over Germany in the Euro 2012 in Warsaw on Thursday night.
In Brussels, in the wee hours of Friday morning after thirteen hours of talks, German Chancellor Angela Merkel agreed to direct refinancing of banks. EU leaders agreed to use the euro zone’s bailout fund to give direct support to struggling banks, a measure first to be used to bailout Spain’s banks but that could possibly also be applied to Ireland.
They also agreed to create a joint banking supervisory body for the euro zone; they will begin to implement these decisions on July 9.
In addition, countries requesting that a bailout fund buy their debt (lowering their borrowing costs) will not be subjected to the sort of monitoring programs imposed on Greece (which was able to obtain a severe write-down of its debt).
With support from French President François Hollande, Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy raised the pressure on Germany by refusing to approve a growth pact of €120 billion ($149 billion), asserting that there must first be EU measures to lower their borrowing costs.
Spain had asked for a bailout of up to $125 billion for its banks but was seeking that the funds go directly to the banks, rather than being added to the national debt.
However, Merkel did not yield ground about mutualization of debt; sharing debt burdens is a deeply unpopular measure among Germans, who resist the notion of having to pay for the debt of other euro zone countries. She has also been able to make sure that Brussels has greater control over the finances of euro zone countries.
Bloomberg heralded Merkel’s compromise as a sign that Germany, after many statements to the contrary, may actually “be willing to do what it takes to save the euro.” Later on Friday, Germany’s lower house of Parliament, the Bundestag, approved the measures.
The euro rose against the dollar after the news was announced.
Italy’s Monti, routinely described as a technocrat, showed deft political skills in the talks. Said the German Der Spiegel, with a none too subtle reference to Italy defeating Germany, a win that meant Germany’s elimination from the championship and thanks to another Italian named Mario (Balotelli):
As in football, so at the euro summit: Italy has won out on key points in a long night of negotiations in Brussels, Chancellor Merkel gave way.
Gloom and doom predictions to the contrary, this week’s euro zone summit might actually mark a turning point in the 30 month economic crusts that began in 2009 in Greece.
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