Euro defeat for Merkel? Only time will tell

Sun Jul 1, 2012 10:59pm EDT
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By Noah Barkin

BERLIN (Reuters) - At first glance, the big winners from Europe's latest euro-saving summit were the leaders of Italy, Spain and France.

By banding together in a powerful coalition to challenge Germany, the high-stakes meeting seemed to show, Mario Monti, Mariano Rajoy and Francois Hollande were able to wring major crisis-fighting concessions from a suddenly soft Angela Merkel.

But if the euro zone is still intact years from now, the marathon session in Brussels may be remembered as much for what the German leader extracted from her combative partners as for the bitter policies she was forced to swallow.

"That Monti, Rajoy and Hollande are now happily selling this as a victory says a lot about the diplomatic skills of Ms. Merkel," said Holger Schmieding of Berenberg Bank.

With her plans hinging on parliamentary votes scheduled for hours after the summit, Merkel took an unyielding public stance in advance. That made it appear as if she had retreated, when in fact she may have got much of what she wanted.

Merkel's biggest concession in the early morning hours of Friday was to agree to give the euro zone's new permanent rescue fund, the European Stability Mechanism (ESM), the power to inject aid directly into stricken banks.

According to the post-summit narrative, she flinched after Monti threatened to withhold his backing for a new European "growth pact" Merkel desperately needed to win crucial votes in the German parliament later that day.

Several senior European officials in Brussels told Reuters however that Merkel had in actual fact signaled privately in the days before the summit that she could live with the idea of direct bank recapitalizations.   Continued...

German Chancellor Angela Merkel delivers her speech before the vote for the ratification of the European Union fiscal pact at the Reichstag, the seat of the German lower house of parliament, the Bundestag, in Berlin, June 29, 2012. REUTERS/Fabian Bimmer