The cold douche begins. Markets will now learn that the European Central Bank’s bond plan is a devout wish, not a done deal. Europe’s political minefield lies ahead.
Nothing can happen until Spain and then Italy request a rescue from the EU bail-out funds (EFSF/ESM), and sign away their sovereignty. Nothing further can happen until an angry Bundestag approves the terms and signs away its money.
Germany has a 27pc voting weight and can veto any rescue.
Even less can happen if the German constitutional court issues a preliminary ruling on Wednesday blocking activation of the €500bn ESM fund. Morgan Stanley’s team – mostly Germans as in happens – put a 40pc likelihood on this happening.
This is not to belittle the ECB plan for “unlimited” bond purchases. The Jesuit-trained Mario Draghi has pulled off a masterstroke, securing the assent of every northern ECB governor except the Bundesbank’s Jens Weidmann, and crucially the assent of Germany’s board member Jorg Asmussen, and indeed Chancellor Angela Merkel herself.
Italy’s premier Mario Monti – a fellow `Jesuit’ – more or less confessed that this minor revolution could not have happened without the defeat of French leader Nicolas Sarkozy in May. The election upset broke the Franco-German axis and reordered the strategic landscape of Europe.
In a poignant exchange here at the Ambrosetti forum – a gathering of the world policy elites at Villa d’Este on Lake Como – he talked of intense “psychological pressure” from Paris and Berlin in the early months of his tenure. It all changed three months ago with the liberating arrival of President Francois Hollande.
This was the birth of the Latin Bloc. Mr Hollande was no longer willing to stick doggedly to the same destructive course or endorse the German morality tale that “sinner states” alone are responsible
(Excerpt) Read more at telegraph.co.uk …