Jean-Marc Ayrault has indicated that France now accepts the German view that there can be no eurobonds without tighter political integration, and that this will take years--if it can be achieved at all. Instead, the main subject of discussion at the next Euro summit will be tighter bank regulation. The quid pro quo for this French concession seems to be that Frau Merkel has agreed to allow the European stability mechanism to fund troubled banks directly rather than lend to the governments that oversee them. This indirect procedure failed dismally in Spain, where the additional debt burden imposed on the Spanish government led to a sharp spike in borrowing costs, making the situation worse.
So, now we have the banks being propped up by the ESM and perhaps the EFSF, neither of which is yet properly funded. Unless there is some surge of market appetite for European risk, what this means is that these entities are being used as camouflage for ECB recapitalization of shaky banks. That's a good and necessary development, and it shows that the Germans aren't quite as adamant or unrealistic as they are made out to be. But there will be no--or very little--stimulus for the southern tier, because major stimulus would have to be financed somehow, and without eurobonds, that isn't going to happen.
In short, we will--or, more accurately, we may--see some calming of the banking panic but no relief for the struggling economies of Spain, Italy, Portugal, and Greece, where unemployment is rampant, political unrest rising, and extremist politics percolating.