Angela Merkel and Nicholas Sarkozy met today. Here is what they came up with.
They put off the idea of a Eurobond. They have proposed that Herman Van Rompuy become the Head of Euro Council,. The debt brake will be anchored in German and French law-so now they have taken over the other Euro countries. All Euro countries will have to put deficit limits into their constitutions by summer 2012. They are committed to a strong Euro currency. They will try to harmonize corporate taxes by 2013.
But the big news is they will propose a transaction tax on financial transactions.
The market fell out of bed after the conference since virtually everything they proposed is more bureaucratic nonsense, and then the added "benefit" of a tax.
The fall out from the conference looks to be three fold.
First, Greece will get gently booted out of the Euro. They should have never been allowed in, and instead of pruning from the top down, they are pruning from the bottom up. Greece will be jettisoned, banks will take a hit and the country of Greece will see massive inflation once the Drachma is brought back.
Second, they will rely on bureaucracy to solve their problems. The 17 nations will have to get their budgets under control. Additionally, the corporate tax harmonization was a shot across the bow at Ireland. Ireland has a low corporate tax and Europeans hate it. Will Ireland be able to continue to fight to keep it’s tax rates low? Time will tell. If I were Ireland, I might rather leave the EU than raise taxes.