EU Leaders Claim “Grand Bargain,” With Loose Ends -- Will Bond Markets Share This Confident View? (3/25)     Print Email
By European Affairs

Concluding their two-day summit meeting, EU leaders said that they had achieved consensus a set of measures to tackle the eurozone crisis – including better ways to handle any assault on the euro via the acutely beleaguered economy of Portugal.

The meeting may have come too late to save that country from swallowing its pride and asking for a bail-out, but the show of determination did have an immediate impact in shoring up confidence in Spain’s ability to weather attacks on its bonds, at least temporarily.  Spain – seen as the next most vulnerable euro economy – seemed to get a market reprieve on the summit’s closing day when Prime Minister Jose Luis Rodriguez Zapatero announced another round of government economies at the summit on March 25.

Crucially, the summit did agree to provide more immediate capital for the bail-out fund that might be needed to rescue Portugal.  The government’s borrowing costs shot to all-time high this week when Minister Jose Socrates resigned on the summit’s eve after losing a vote of confidence on a new round of austerity measures.

That development convinced many analysts that Lisbon will now have to accept a bail-out package from the EU and the International Monetary Fund, with some tough strings attached in the coming weeks.

Portugal’s current vacuum of authority – along with the anti-spending electoral pressures in Germany and Finland – meant that the leaders were unable to settle some details of their planned “grand bargain” such as the exact schedule for raising more capital for a proposed new, larger bailout fund due to start in 2013.

“There are certain technical details to be worked out but the political course has been charted,” according to German Chancellor Angela Merkel.  She pointed to June, the date of the next EU summit as the time for finalizing the remaining details of the pact for the euro and the final pay-in schedule of the planned new European Stability Mechanism. For the background, see this situationer: EU Summit Seeks "Grand Bargain" on Euro: Will New Pact Convince Markets? (3/23).