Into the whirlwind
Given Germany and France continue to find it difficult to agree on the operational implementation of the Eurozone’s bailout fund, the European Financial Stability Facility, it looks like we’ll have to wait a few more days for a solution to the Eurozone crisis. There’s a danger that this weekend’s EU and Eurozone twin summits risk turning into a farce.
Can we expect an agreement at the hurriedly convened second summit next Wednesday? The delay has already caused damage: the differences between Merkel and Sarkozy have undermined the confidence in the EU governments’ ability to act and the timeline for the Greek bailout threatens to collapse. The markets have reacted accordingly and the Dax fell 2.5% after the postponement was announced.
All this should be particularly alarming to the financial services sector which is closest to the epicentre of the Eurozone crisis and which is increasingly tangled up in the dynamics of the crisis. Recapitalisation is the biggest threat in the short-term, but other regulatory debates, especially the European Commission’s proposal for a financial transaction tax are likely to get sucked into the whirlwind with an outcome that could be painful for the sector.
Amid all this turmoil at least one European leader has seen an increase in his popularity this week: Carla Bruni, Sarkozy’s loyal wife, gave birth to a daughter. This story has dominated the headlines over the Eurozone crisis and has given Sarkozy a leap of 5% in his popularity ratings. The timing could (almost) not have been better… you have to give it to him, as political tactician he is second to none…
Christian Hierholzer
Managing Director, Brussels
October 21 2011