The "Treaty" Negotiations

Via Peter Tchir of TF Market Advisors,

Well, it seems like the ECB is telling the countries they need to change the treaty if they want the ECB to act more like the Fed (giving up the pretense of sterilization).  Maybe the move is designed to push the issue and make the summit come up with an even bigger plan (regardless of how unlikely it would be to get implemented).

That is certainly a possibility.  On the other hand, more countries have to be getting nervous about the control they are ceding.  Solid countries like Finland and the Netherlands may question why they should give up more control.  Why they should let the central bank do more than was originally intended.  Are they confident that the changes will fix the problem, or are they more scared that the situation will be made worse, and they will have greater difficulties in the future, all because they gave up more control?  Small countries must also be getting nervous.  It is clear that power is shifting to Germany and to a less extent France.  They have to weigh the benefit of remaining in a euro where they give up more and more of their sovereignty. 


It is clear why Germany and France want treaty changes, and may be willing to give the ECB more rights.  It is equally clear why Spain and Italy would support any form of agreement, especially if it needs approvals before being implemented, so they can keep their options open.  Belgium is probably in for whatever it takes since the Dexia bailout is adding to their existing problems, and more power for the EU politicians in Brussels is beneficial to their economy.  What Ireland and Portugal are thinking is a bit of a mystery.  No matter what they are saying publicly, they must be wondering if default and a fresh start isn’t a better option than giving up more power to the EU.


It isn’t just the fear of too much influence on all policies by the Germans and French, but that policies will be too focused on Spain and Italy that may make them even more reluctant to sign up.


The chance of a smiling hand-holding photo op has greatly diminished.

Chart: Bloomberg