Updates on the European Debt Crisis Talks

The Lede followed developments in negotiations over the debt crisis in Europe, where leaders of most — but not all — of the countries in the European Union agreed on Friday to sign an intergovernmental treaty committing their countries to stricter budgetary discipline. The live blog has ended. Check the business and world sections for the latest developments.

4:32 P.M.Markets End the Day Higher

Traders who voted on the European agreement with their wallets were no more sure at the end of trading than they were at the beginning. The major Wall Street indexes closed up, in a range of 1.5 percent to 2 percent higher, which almost constitutes an average day of trading in these up-and-down times.

Changes in bond yields were also modest at day’s end, with 10-year U.S. Treasuries up 0.09 percentage points to 2.061.

With a slightly longer horizon — this week — stocks also ended comfortably, rising about 1 percent. And for the year, the Dow Jones industrial average is up 5 percent since January.

Of course, Wall Street gets to vote every day how it feels. Next week, among the European developments it can react to are Greek negotiations for the country’s next bailout payment (Monday) and an Italian bond auction (Wednesday).

3:34 P.M.A View on the Next Round of European Political Wrangling

Clemens Fuest, a professor at Oxford University who has advised the German Finance Ministry, tells our colleagues at The International Herald Tribune that there is still political maneuvering to unfold.

Germany and the other northern European countries know that eventually there will be some kind of financial solution, such as bond guarantees or jointly issued euro bonds, he said.

But they are determined to extract as many concessions as possible before agreeing to such measures.

“Markets are looking for some kind of clear signal,” Mr. Fuest said. “Germany and other northern countries are trying to avoid giving that signal because this is a point of no return. Pressure for stronger governance will be gone once the north agrees to anything like euro bonds.”

The additional financial support agreed to in Brussels, including aid funneled through the I.M.F., at best buys time for Europe to create a system that satisfies German demands for budgetary discipline, Mr. Fuest said. He estimated the additional support will provide relief “for perhaps half a year or a year. That is probably the most optimistic scenario.”

Eventually the European Central Bank will have to relent and become lender of last resort to governments, despite the protestations of its president, Mario Draghi, Mr. Fuest said.

“I think they will buy bonds if everything goes wrong,” Mr. Fuest said. “They will just do it.”

3:25 P.M.A Reward for Envisioning a Euro Zone Breakup

Europe’s leaders may think they are moving to closer unity in the euro zone with their new pact, but there are many who are convinced that some form of a breakup is inevitable and that the preparations for such an outcome should begin now.

To that end, the chief executive of the British retailer Next, Simon Wolfson (or Lord Wolfson of Aspley Guise as he is known in Britain), has put a challenge to economists by offering 250,000 pounds — the second largest money pot for economists outside of the Nobel Prize — for the best analysis of what might happen if a country or countries were to leave the euro zone.

While a recognized euro skeptic, Mr. Wolfson and the contest organizers are looking to reel in contributions from economists not just in ever-doubting Britain but among countries in the euro zone itself. From the 20 submissions already sent in, one has come from Greece and one each from Italy and Germany.

The deadline is January 31, 2012.

“It’s time to get people to focus on this issue,” said Derek Scott, a former economic adviser to Tony Blair who will lead the panel of judges. “And the longer you delay it the more difficult it will become.”

— Landon Thomas Jr. in London

3:12 P.M.Video: The Times’s Graham Bowley on the Euro Deal

1:22 P.M.Analysts’ Reactions

Gross: Oh what a tangled web the #EU has weaved. Never ending story, hard to trust. Risk off.Fri Dec 09 16:11:08 via web

Despite early rallies by stocks in Europe and the United States on Friday, some analysts saw the overnight deal hatched in Brussels as opening the door to a potentially larger European political and fiscal crisis in the future.

“Oh what a tangled web the #EU has weaved,” read a post on the Twitter account of Pimco, the giant bond investor, and attributed to Bill Gross, its founder. “Never ending story.”

An analysis by Reuters warned that the agreement will likely fail to shake off concerns of a breakup of the eurozone down the road. The Reuters financial blogger Felix Salmon expressed even stronger dismay at the deal in a post entitled “Europe’s disastrous summit”, calling the solution “half-baked” and warning that “it is now, officially, too late to save the Eurozone: the collapse of the entire edifice is now not a matter of if but rather of when.”

Over at the Financial Times, Neil Hume, an editor, observed that deal seemed to indicate a willingness to threaten the Europe’s political union in order to save the common currency.

The only way to save the eurozone is to destroy the EU //t.co/uBBxhQnSFri Dec 09 14:33:49 via TweetDeck

Others saw a triumph for German fiscal policy in the European agreement.

“The UK veto must not obscure the economic message of the summit,” Gavyn Davies of the Financial Times said on Twitter. “The German approach to policy will now be writ large.”

In an accompanying blog post, he writes, “My initial take on the deal is that it will be sufficient to dampen the acute phase of the crisis, but that the absence of a clear long-term strategy for growth means that there could still be a long period of chronic problems ahead.”

1:14 P.M. Will European Banks Avoid Paying for Their Bad Bets?

In a post on The Times’s Economix blog, Floyd Norris observes that a recurring lesson of the 2008 financial crisis, now being mirrored in Europe, is that there may not be the political will to force banks that made bad bets to pay for them:

I suspect the reality is that the recent experience has traumatized Europe enough that it will be a very long time before anyone suggests that banks should suffer for foolish lending to a member of the European Union.

12:45 P.M.Markets Offer Tepid Endorsement of European Agreement

Given the volatility on Wall Street over the past few months, when 2, 3 and even 4 percent gains and losses have struck with relative frequency, a 1 percent gain in stock indexes doesn’t seem like much of a rally.

So call today’s reaction — the Dow Jones industrial average is up 1.3 percent at lunchtime — a tepid endorsement of the euro zone agreement.

But many have argued the real-world reactions to the euro crisis take place in the bond market. It is, after all, a “sovereign debt” crisis.

So? Well, today’s pulse is equally hard to distinguish in the bond market.

As Friday dawned on the Continent, first prices went down and yields went up on the bonds of countries considered most at risk, Italy and Spain. A few hours later, they went the other way. In both cases, the movements were not especially dramatic, compared with fluctuations of the past week.

Our economics expert and columnist, Floyd Norris, says there is now a “small leveling out” of European bond yields unfolding, with Spanish and Italian yields falling and German and British yields gaining. (Action in the U.S. Treasury market is almost certainly not a reaction to Europe, he says.)

Even so, he adds about the European activity, “These are not significant moves. The agreement is not being treated as if this changes anything very much.”

12:00 P.M.In Interview, Cameron Defends Decision on Treaty

Prime Minister David Cameron in an interview with Sky News on Friday strongly defended his decision to opt out of a fiscal and financial treaty with European Union members, saying it was in Britain’s national interest to do so.

“You’ve never seen Britain say ‘no’ to a European treaty before,” he acknowledged, but said, “There was a treaty on the table, it didn’t adequately protect Britain’s interests. Instead of going along with it, I said no to it. I thought that’s my job.”
He rejected the notion that he made the decision unilaterally without consulting the British public. “The whole point is we’re not going ahead with the treaty,” he said.

Other European countries are now going to be negotiating a treaty that passes power in many of their cases from nation-states to Brussels.”

He added: “That’s a big change for them; it’s not going to be a change for us. There isn’t going to be a treaty. We’re not changing our relationship with the European Union.”

11:36 A.M.Amid Crisis, Croatia Moves Closer to E.U. Membership

Lost in the sturm und drang of the European debt negotiations, Croatia on Friday quietly signed the accession treaty that puts it on track to join the European Union, pending a ratification process, in July 2013.

After its two-day meeting in Brussels, the European Council sought to highlight the procedural advance as “an important moment for European integration.”

José Manuel Barroso, the president of the European Commission, also highlighted the future accession of Croatia in his official remarks on Friday:

As you know, this morning we signed the accession treaty with Croatia. This is a very important moment which shows the positive pull of the European Union, the transformational power also of the European Union and our continued and reinforced commitment to the enlargement process. We have also set out the next stages for Montenegro and Serbia on their path towards the Union, building on the considerable progress they have made over the last year.

Or, as the European Commission exclaimed in a post on Facebook, with a link to a Croatia-positive video: “Dobrodošli Croatia!” — in a word, welcome.

11:29 A.M.Council President Celebrates Europe’s ‘Achievement’

Herman Van Rompuy, the president of the European Council, in a video excerpt from his news conference on Friday, lamented that not all the European Union members had signed on to the proposed treaty.

“It is unfortunate that we missed the chance to have a full-fledged treaty change,” he said, but added that it was still a positive step for the countries that share the euro. “It is already an achievement, I found, that not only the 17 of eurozone — because it is for helping to safeguard the financial security of the eurozone that we are all doing all this — but it is quite an achievement that almost 10 other countries wanted to cooperate with us.”

He added: “There is also a very clear political message to the outside world. that even if without all the legal instruments of enforcement that via an intergovernmental treaty that we will be as binding as possible.”

In a press release issued on Friday, he called referred to the “fiscal compact” reached in the early hours of the morning and made oblique reference to the reason for why it would be an ” intergovernmental treaty” rather than one reached among the entire European Union.

“Except for one, all are considering participating,” he said in the statement.

10:42 A.M.Merkel Offers Sober Thoughts on British Decision

In her news conference, Chancellor Angela Merkel of Germany offered a sober assessment of Mr. Cameron’s decision to keep his country out of the “fiscal pact,” which is aimed at stabilizing the single currency and is supported by most other member states.

“What is important for me now — and thus I’m not unhappy about the outcome of our Council — I believe we’ve got what we wanted to get to get for the euro,” Mrs. Merkel told a news conference on Friday afternoon in Brussels.

But “as a European of the 27, I would have been happy if Great Britain would have said ‘yes,’” she said.

Mrs. Merkel explained that Britain could not be brought into the agreement negotiated on Friday morning despite the efforts by Mr. Cameron to win concessions to protect the City of London as a global financial center.

“Great Britain said that if treaty changes were to occur then they also wanted certain treaty changes in return, and that kind of conditionality was something we could not support and accept,” said Mrs. Merkel.

Britain was the “one country that has expressed a clear sense of distancing itself,” said Mrs. Merkel. But she rejected suggestions that Britain had undermined plans to put the management of the euro, and Europe’s finances, on a sustainable path.

“I have talked to David Cameron and it’s become quite clear that Britain relies as much as we do on a stable euro because it does have an effect on Europe as a whole,” said Mrs. Merkel.

— James Kanter in Brussels

10:31 A.M.Markets Show Early Approval of Agreement in Europe

Wall Street traders voted their opinion of the European agreement by buying stocks, and the Dow Jones industrial average rose more than 1 percent in the first hour of trading.

The S.&P. 500 index, which is a better measure of broad market sentiment, added a bit more, 1.2 percent. European markets continued their gradual gains, with one measure of the euro zone stocks, the Euro Stoxx 50, up more than 2 percent.

10:30 A.M.Goldman Sachs Raises Ratings for European Banks

Ratings agencies may still be lowering the boom on European banks, as my colleague Liz Alderman reported, but Goldman Sachs is taking a contrarian view. The Wall Street bank said Friday that it is no longer recommending that investors sell their holdings in European lenders, raising its grade to “neutral” from “underweight,” citing support from the global monetary authorities.

Goldman began recommending on Nov. 30 that investors reduce their holdings of European banks because the combination of a worsening economic picture and a need to improve capital, as well as the need to dispose of assets overseas, which was in effect going to make the banks “more domestic.”

In spite of those facts, Goldman analysts said Friday in a research note, new funding arrangements agreed to by the Federal Reserve, the European Central Bank and other central banks “should significantly help the banks offset the pressures of the economic downturn in our view” and is already helping to ease funding pressure.

“In a further positive surprise, the ECB is also now offering banks 3-year liquidity on an expanded collateral pool (which now includes loans) and a lower reserve ratio.” Goldman said its analysts believe “the scope and structure of this facility directly addresses the banks’ key funding concerns.”

While official support for the banks “help to reduce the risk premium to some degree,” the analysts noted, the fundamentals, in a nutshell, still stink, so “on balance, we feel a neutral in the sector is appropriate.”

Hardly a ringing endorsement, perhaps, but still a soothing balm to institutions that have seen little but bad press of late.

— David Jolly in Paris

10:22 A.M.In Britain, Talk of a Greater Gulf With Europe

On the other side of the English Channel, the British news media similarly saw Mr. Cameron’s refusal to submit Britain to a proposed treaty as a major development in its relations to the European Union:

The Economist: “The EU’s tectonic plates have slipped momentously along same the fault line that has always divided it—the English Channel.”

Gavin Hewitt, the BBC‘s Europe editor: “There is now a two-speed Europe. … Never has the UK been more isolated in Europe.”

Nicholas Watt, The Guardian‘s chief political correspondent: “… one of the most significant developments in Britain’s 38-year membership of the EU.”

Ian Traynor, The Guardian‘s Europe editor: “[T]he summit in Brussels might go down as a watershed event, the beginning of the end for Britain in Europe.”

Tom Burgis, on the Financial Times‘s live blog: “The English Channel just got a lot wider.”

Graeme Wilson, The Sun’s deputy political editor: “The EU suffered its worst split in history this morning as David Cameron told the EU to get lost.”

As our colleague Sarah Lyall points out in summarizing British political reaction to Mr. Cameron’s decision, “given the virulent anti-European mood in his Conservative Party back home, it seems that there was little else he could have done.”

10:12 A.M.Too Late for Print, European Papers React Online

In Europe, the view from local media online this morning was all over the map, so to speak. Focusing on the road not taken by Britain, the Guardian headlined the main article on the British edition of its Web site: “UK isolation grows as others reconsider treaty.”

It’s an isolation hard to ignore no matter where. In Italy, the daily Corriere Della Sera bannered the news on its Web site, above, declared, “New Europe: Budget treaty for 26; only Great Britain stays out.” The paper later moved to a more locally focused take with a quote from the country’s new technocratic prime minister, Mario Monti, highlighting how Europe had “Appreciated Italy’s Efforts”.

Germany’s Bild included a quote from its chancellor, Angela Merkel, in the main headline: “Merkel explains her euro success: The crisis is a chance for the new beginning.”

El Pais in Spain deepened the rift, at least rhetorically, saying, “Europe advances and leaves the United Kingdom the only isolated country.”

And then there’s the French exception: as of the early afternoon in France, Le Monde’s main headline online was a story about Dominique Strauss-Kahn, leaving the European crisis to its fourth-ranked article, an editorial entitled “Great Britain more insular than ever.”

The right-leaning French daily Le Figaro concurred: “Only Great Britain Snubs the European Accord.”

9:26 A.M.Stocks in Europe Rise; Historic Enemies Draw Closer

As markets opened in the United States, we’re watching stocks rebound in Europe even after the ratings agency Moody’s downgraded its ratings for three large French banks, Société Générale, BNP Paribas and Crédit Agricole.

Elsewhere, our colleague Nicholas Kulish reports that efforts to stem the slowly unfolding crisis have brought historic enemies, Germany and Poland, closer together. He writes:

In the midst of discord, the former foes find themselves closer than ever, perhaps paving the way to a new axis of Paris, Berlin and Warsaw that could eventually form the core of a more deeply integrated Europe.

9:15 A.M.British Leaders React to Treaty Refusal by Cameron

David Cameron should be building alliances. The UK went into the summit without them and the outcome showed we lacked influence.Fri Dec 09 10:18:53 via web

The BBC has collected reaction from British politicians to Prime Minister David Cameron’s refusal to sign on to the treaty deal agreed upon by the majority of European Union countries. Here is a selection:

William Hague, the foreign secretary: “What they’ve committed themselves to is to giving up more national control over their budgets, and us standing apart from that is not being isolated from them – it is a very sensible thing to stand apart from that.”

Nick Clegg, the deputy prime minister and a Liberal Democrat: “As a lifelong pro-European, I will continue to argue within government and with our European partners that where changes now occur, it is essential that the integrity of our open European single market is kept intact and that we work together on the long-term problems of competitiveness within the EU on which millions of people’s jobs depend.”

Boris Johnson, the mayor of London: “David Cameron has played a blinder and he’s done the only thing that it was really open for him to do… I understand the argument in favor of these measures because everybody’s desperate to save the euro, but they would just mean a quite unacceptable loss of national sovereignty.”

9:06 A.M.Wall Street Set to Open Higher

Wall Street was poised to open slightly higher on Friday in the wake of the accord reached at the summit in Brussels, with Dow and Standard & Poor’s futures pointing to a bounce at the opening.

The dollar weakened on its index compared with a basket of currencies.

If sustained throughout the day, any gains would be a welcome end to the week and could well push the Dow and the S.&P. into positive territory. They were down marginally for the five-day period as of Thursday’s close, when the broader market as measured by the S.&P. finished more than 2 percent lower. The financial sector has been hit particularly hard.

— Christine Hauser in New York

9:04 A.M.Britain’s Banking Industry Under ‘Constant Attack’

Prime Minister David Cameron, who did not agree to sign the treaty negotiated on Friday, said as early as October that London’s financial center was coming under pressure from the European Union.

Some lawmakers were concerned that Brussels would pass laws or financial regulations that would move lucrative financial services from London to Frankfurt or Paris. “London is the center of financial services in Europe,” Mr. Cameron said in October. “It’s under constant attack through Brussels directives. It’s an area of concern. It’s a key national interest that we need to defend.”

— Julia Werdigier in London

9:00 A.M.Live Video and Audio of Leaders’ Remarks

The European Union is streaming live video and audio of the news conferences being given by individual leaders of Europe, including Chancellor Angela Merkel of Germany.

8:52 A.M.An Earlier Moment of British Standoffishness

Alan Cowell, our veteran foreign correspondent and Britain watcher, is not at all surprised by Britain’s standoffishness. As he writes in today’s Letter From Europe in the International Herald Tribune, “History and geography have combined to divide Britain and Continental Europe far more profoundly” than just the width of the English Channel.

He reminds us that Charles de Gaulle opposed Britain’s entry into the European Union in 1963. In addition, Mr. Cowell writes of an exchange between Winston Churchill and the French leader:

Shortly before the D-Day landings of 1944, Mr. Churchill told the French general Charles de Gaulle that every time Britain had to “decide between Europe and the open sea, it is always the open sea that we shall choose.”

“Every time I have to decide between you and Roosevelt,” he said, referring to the wartime U.S. president, “I shall always choose Roosevelt.”