The European Disunion

It's no wonder France, Germany, and the Netherlands can borrow at negative interest rates. The situation with respect to Spain and Italy is so confused that investors can hardly do anything but flee those countries. Not only can the Europeans not agree about what to do, they can't even agree about what they've agreed to. The Eurogroup finance ministers issued a statement meant to clarify things. There would indeed be direct subsidies to banks without sovereign guarantees: “Then, there will be no sovereign guarantee required,” Thomas Weiser said at the press conference.

But… hang on now. Even when the eurozone-wide banking supervisor is all agreed and ready to go, will the recaps made after that point really not add to sovereign risk? German finance minister Wolfgang Schauble doesn’t think so. He also made a statement in the early hours of this morning. From the WSJ:

“We expect that the final liability of the state will remain” even once the banking supervisor is up and running, he told journalists. He added that what mattered was that the bank support wouldn’t add to a country’s debt—something that he said would be possible even under a scenario where the government retained liability for potential losses.

If you were trying to sabotage the agreement, if there was an agreement, you couldn't do it more effectively. So what exactly did the Germans agree to at the summit? Did they go the full Monti, as Monti claims, or did they leave sovereigns on the hook for any bailout aid to their banks? We may never know, since this "agreement" is likely to be rendered inoperative and supplanted by another even before the "comprehensive supervisory authority for banks" on which the bailout recaps are conditional is up and running.