Madrid’s financial City: “EU pacts inspire willing optimism, but were not yet there”

By Julia Pastor, in Madrid | The Spanish financial analysts received the news that arrived from Brussels with a certain degree of optimism, not without disappointment, but recognising that the pacts that were achieved imply a step forward.

Banco Sabadell experts give an outline summary of the conclusions reached at the meeting.

“Starting with the fact that expectations were low and that the market’s sentiment was negative, the final balance is negative: the pact falls short and is disappointing. Moreover,Germany is against expanding the ECB’s rescue mechanisms. However, the Fiscal Stability Pact that will affect 17 countries of the euro zone, and possibly six more, is positive when and if the implementation is fast enough.”

The fact that Draghi described the pact as positive, and that Eurobonds were not rejected straight on but their study was merely postponed until the month of June are also good news for Sabadell.

Citi analysts in Spain expand their analysis a bit more. They say:

“Great issues to deal with, great agreements to come. And for now, what we are learning is not what we expected. But really, was it logical to expect a quick and robust solution to the crisis? Politics move at their own speed.

“It was agreed that the ESM be set up a year ahead of schedule. This way it will be compatible with the EFSF, although it is still unknown how guarantees can be doubled. Minor details, anyway. We also know that the permanent rescue fund decisions will be taken with an 85% majority, with the exception that Finland’s parliament must ratify this. More small print.

We know that the debt issued in the future will include a collective negotiation clause, which will make viable the negotiation of default adjustments. Thus, the voluntary haircut on Greece’s debt will be the exception. In the future, they will be mandatory. We know that the IMF is somehow involved. More details later.

And we already know that the 17 have reached an agreement on the reform of the Treaty. Yet, we don’t know how. A matter of small print. We know that the UK will not participate in the reform. We’ll see what status this country will have in the EU in the future. Or whatever.”

Morgan Stanley analysts believe that

“in general, and regarless of what the markets want, it is clear that Europe is on the move and the EU countries (with the exception of the UK) are working in favour of the permanence of the euro and to achieve serenity in the markets that, despite the efforts of some elements, will take hold at some point sooner or later.”

They conclude that

“In the end, the euro zone will always have the possibility of announcing a QE to stabilise the area, something that others cannot do because the have already used up all their ammunition. However, before using this weapon, a rational solution should be sought out, which is no other other than tightening one’s belt.”

The Spanish politicians have also given their opinion regarding the agreements reached in the summit. Diego López Garrido, the outgoing Secretary of State for the EU, commented that

“a 23 country agreement is better than nothing”. Moreover, he underlined that “what is important is that the ‘core countries’ of the euro have said yes and are united with regards to the fiscal discipline.”

From the Spanish press, we think it is worth noting the hopeful vision of the Cinco Días’ Brussels correspondent, who in his daily blog wrote:

“After a year and a half gestation (since May 2010), it seems that a new euro zone is about to be born. Heiress to the previous one (that lived 13 years) but much more ambitious because it means the jump towards fiscal integration, a technical term behind which there is a hidden step that is decisive in the appearance of a quasi-European state.”

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