Here are my quick observations on the outcomes of the EU summit. The UK's decision to opt out has soaked up all the attention. The Guardian calls it "isolation", as if it were a bad thing to stop running with the rest of the lemmings as they merrily head towards the cliff edge.
Did the summit provide enough to save the Euro? My sense is that the crisis will continue. The measures were not enough to stem to loss of confidence in Eurozone public debt markets.
• EU leaders described the deal as based on a new "fiscal compact" and "on significantly stronger co-ordination of economic policies in areas of common interest".
This is the kind of sentence that generates a hundred questions. Here are a few for starters; what exactly will be a "fiscal compact"? What happens if countries disagree over the compact? Who will adjudicate disagreements? Who will monitor the compact? What happens if a country fails to meet its obligations under the compact?
Although the questions mount, we can be sure that all answers lead to Brussels and a further consolidation of decision making in the hands of the EU Commission. How does a transfer of budget decisions from Rome to Brussels help pay down Italy's debt stock? It will work if Brussels prevents the Italian government from spending and forces it to raise taxes.
• Eurozone states' budgets should be balanced or in surplus; this principle will be deemed respected if, as a rule, the annual structural deficit does not exceed 0.5% of gross domestic product.
European governments are a long way from balanced budgets. At best, this is a medium term objective. Presumably, if bond markets believe the commitment, then bond yields might fall.
The structural deficit target is open to abuse. These deficits need to be estimated, and countries could play around with the numbers. Moreover, the 0.5 percent deficit target looks a little loose. It is probably not sufficient to bring debt levels down over the medium term.
It would have been far better if the Eurozone had chosen an overall balance target; it would have been more transparent and more effective at bringing debt levels down.
Bond-holders will see through this measure and heavily discount its significance.
• Such a rule will also be introduced in eurozone member states' own national legal systems.
Germany has such a rule in its legal framework, and it has been there since the late 1960s. However, it has so many loopholes that the German government can run any deficit it likes. The resolution to the Eurozone crisis does not reside in the law; governments simply need to stop accumulating debt. That means less spending and more taxes.
Eurozone countries must report national debt issuance plans in advance.
What happens when a country wants to issue too much debt; can the other countries stop them? If so, how?
• As soon as a eurozone member state is in breach of the 3% deficit ceiling, there will be automatic consequences, including possible sanctions, unless a qualified majority of eurozone states is opposed.
The original Euro agreement had a similar clause, but Eurozone countries chose to ignore it. There were sanctions, an adjudication process and regular assessments. Germany was the first country to ignore the rules in 2003. France followed, then Portugal....and so it went on.....
• The European Stability Mechanism (ESM), the eurozone's permanent bailout fund, is aimed to enter into force in July 2012; the existing European Financial Stability Facility (EFSF) will remain active until mid-2013. The overall ceiling of the EFSF/ESM of €500bn (£426bn) will be reviewed in March 2012.
A simple question; does the ESM/EFSF really have €500 billion and if so, who ponied up the cash? Also, why does the ceiling need to be reviewed in March. Answer; because it is probably not big enough to catch Italy if it falls out of the bond market. In other words, the crisis is likely to continue.
• Voting rules in the ESM will be changed to allow decisions by a qualified majority of 85% in emergencies, although that remains subject to confirmation by the Finnish parliament.
A classic result from an EU summit; a convoluted voting mechanism for an obscure European institution with a big budget.
Meanwhile, back in the Italian bond market.....