It took them 13 hours, but eurozone leaders have finally agreed to use bailout funds to recapitalise banks directly. The deal, which was reached at 4am (David Cameron had gone to bed at 1am because this is a eurozone, not EU matter), involved Germany giving in to the demands of Italy and Spain. You can read the statement from the euro area leaders here, but essentially what it says is that the refinancing will not take place until a single banking supervisor is set up, to be run by the European Central Bank. This was originally going to be a long-term project, but leaders have now set a deadline of the end of this year for everything to be up and running.
Angela Merkel was essentially backed into a corner by Italy and Spain at the summit, refusing to agree to anything until the refinancing deal was pushed through. John Redwood argues this morning that the agreement that the leaders eventually reached is actually a form of Eurobonds ‘by the back door’, which Merkel has always opposed. Redwood writes:
Cameron will have felt rather relieved, though, when he awoke this morning to discover that any solid agreement had been reached. After all, when he left the room in the small hours, it looked as though the talks were going to break up without agreement. Yet another summit with no firm agreement would have been the last thing the markets were looking for. Instead, they have shown positive signs initially, with the euro gaining as much as 1.5% against the dollar on the Asian markets after the announcement.
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