Fog and sunshine in Brussels

Am in Brussels where the sun is breaking through but political fog beckons.

This was always going to be an informal dinner – orginally planned as a getting to know you session for Francois Hollande and the other 26 EU leaders. It is still intended to be “informal” – in so far as a multi-lingual conversation between 27 government leaders can be a casual, chipping in at will. It is still intended to have no communique at the end, just words from van Rompuy the President, who chairs the sessions. So what is on the political menu?

The talk of a massive breakthrough on Eurobonds is far-fetched. They would take years to get going -ECB targeted acts of intervention, particularly on bank liquidity, remain the order of the day. The German people are not ready for Eurobonds. They could require an EU treaty and a change to the German constitution.

Berlin is acutely aware that Francois Hollande has to rattle a sabre at austerity. Not just because he’s just been elected to do that but – more importantly – because he wants to win the French Parliament elections in mid June.  Chancellor Merkel is acutely aware how important those elections are to President Hollande and to help smooth a tricky relationship she is backing a “growth pact” text to be ready for the next full EU summit in late June.

Quietly, EU governments and Brussels sources say this is a repackaging of stuff they were already signed up to, wrapped in a big French tricolour to make it look like a stunning success for President Hollande. The “project bonds” also being worked up are pretty small scale (EU230m) but will get a big brassy fanfare too.

So everything could be “on hold” until after the Greek (and French) elections … or that’s what the EU leaders hope.

There’s still a chance that a run on a bank ruptures this timetable. But if things go as expected/feared, the Greeks will again elect parties that want austerity rethought and the smart money reckons that if/when that happens the EU (Germany included) will concoct some sort of compromise … not so much austerity rethought as austerity slightly relaxed. A stretching of the fiscal compact timetable for restructuring is now looking like something that the French, Italians and Spaniards (amongst others) could back.

All of which would mean that the big endgame – whether the Eurozone countries will merge their economies in full fiscal union – is not about to be decided here, tonight, in Brussels. It’s not about to be decided in Brussels next month either.

But it is what the world is waiting for, what David Cameron amongst others is pushing for and what the bond markets might yet force onto the agenda – what David Cameron just called in the Commons “a single currency (with) an active interventionist central bank behind it.”

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