The hottest 48hrs for the EU

The most crucial 48hrs in the history of the European Union are here. Until Friday afternoon essentially, its leaders are called to Brussels to decide not on the course of the economy, the anti-depression methods and the characterization of their tools as permanent or temporary, but on the actual coherence of the Union, the future of the Eurozone and the rumors of a two-speed Europe, a North and South euro, countries exiting the EMU and the tearing down of the Union’s structure both politically and economically.

In one of the most important summits since the birth of the EU, the agenda includes all burning issues, the top one being formal approval of determining the details and timing of operation of the notorious permanent mechanism to support weak member countries.

Which means an essential revision of the Lisbon Treaty, but more importantly – and given that the German proposition will pass – that from 2013 onwards the cost of borrowing for the weakest countries will grow further, endangering the smooth repayment of existing loans (for Greece and Ireland they were given at a not very  insignificant rate!); even worse, it will make it harder for them to get back to the markets and diminish their chances of raising capital at reasonable rates.

The «Merkel proposition»  consists of the notorious «collective responsibility clause» for new debt issues (bonds) in Europe, and the question for analysts – and political and financial elements who are in opposition until the last minute – is which private investor will agree to buy government bonds from European countries that are in the process of recovery from the brink of bankruptcy by whatever this means for their ability to meet their obligations and not go into debt reorganization, “clipping” or reducing values.
In other words, WHO will take the risk of lending to «unsafe» countries and at WHAT rate?
Meanwhile, Merkel, backed by France (how much longer?), is pressing for further changes in the Lisbon Treaty, in order to establish more stringent sanctions for «unruly»  country-members, even for the possibility of a controlled bankruptcy of a country-member of the EMU.

Given all this, it’s easy to describe the reaction in the markets. On Tuesday, S&P warned for a possible downgrading of Belgium (!) and on Wednesday Moody’s did the same thing but for Spain!!!

And even though Merkel, a few hours before the adjournment of the summit, rushed to ensure that «no country in Europe will be abandoned», she made it clear that there is no question of adopting a Eurobond by saying that «the rest of our concerted actions will demonstrate to investors that the Europeans want the euro».

The question is which Europeans exactly…