Joachim Fels:
Morgan Stanley's Joachim Fels on The EU Summit: By agreeing to create a single banking supervisory mechanism run by the ECB and, once that’s done, allow the ESM to inject capital into banks directly, Europe’s leaders took an important step towards breaking the negative feedback loop between banks and weak sovereigns and progressing towards a more federal Europe. To be sure, it’s only a stepping stone, not a milestone, because the debate about the ‘if, how and when’ of a fiscal union is far from resolved and will likely intensify in the coming months. Still, couching it in terms of our scenarios for the euro area, the summit outcome makes me more confident that the euro area is not headed for ‘divorce’ but will rather keep ‘staggering on’ (which has been our main scenario from the start) and may eventually even end up in the ‘European Renaissance’ quadrant defined by both economic rebalancing and fiscal union. Fingers crossed.
