Last week there were no other major market movers, as the focus was on the EU summit.
The Summit did accomplish the following:
- It helped break the link between sovereign states and banks. Ultimately, the states must still pay for bank bailouts via their contributions to the EFSF (European Financial Stability Facility) and ESM (European Stability Mechanism), both of which are likely to need more contributions, unless the ECB starts printing Euros. At this time, Germany and others oppose that, meaning that bank bailouts could still mean more sovereign debt.
- New EU rescue loans no longer have seniority over other creditors: only helps if GIIPS do not default, otherwise it is irrelevant.
- It Allowed the ESM fund to buy government bonds in order to stabilize sovereign rates. This only works if GIIPS do not default and the ESM is funded sufficiently. The ESM is unlikely to function until the end of 2012, at earliest.
Unfortunately, we can tell that these solutions are still piling more debt onto those who cannot handle the current debt loads.