Angela
Merkel has appeased other European leaders, and the markets,
by
agreeing to a plan that aims to tackle the eurozone crisis. The
plan, backed by Italy, Spain, and France, allows for rescue funds
to remain available for banks without constituent nations having to
impose austerity measures. In Germany the press has spun the
agreement as a defeat, with Merkel being portrayed as having
conceding too much to Spain and Italy in particular.

The current bailout mechanism, the European Financial Stability
Facility, will continue to provide relief until the introduction of
the recently proposed European Stability Mechanism that will be
launched next month. Under the new proposals not only will funds be
available to banks regardless of the behavior of the countries they
happen to be in, but the funds may now be used to by bonds.

The Germans, Dutch, and Finns had been pushing against these
sorts of proposals. However, Merkel’s concession looks like the
beginning of the end of the anti-bailout rhetoric. The only hint at
good news is that under the new agreement banks, no countries will
receive funds. The worst news is that plans are in place for there
to eventually be a closer and more unified union, something
welcomes by most European politicians.  

The markets reacted positively to the news and borrowing costs
for Italy and Spain have dropped. However, optimism may be short
lived if Spanish and Cypriot bailouts do not have their desired
effect and the plans cannot get implemented within the next few
months.

It is not hard to understand why Merkel is now embarking on a
damage control tour. The agreement unsurprisingly fails to take
into account any moral responsibility. The bond agreement means
that Germans will now bear similar burdens as the Greeks,
Spaniards, and Italians. With debt no longer considered a national
responsibility fiscal union looks increasingly likely.

If you have a moment (and a stiff drink to hand) you can read
the agreement
here.