“they have waived the rules on what was designed to be an impenetrable fortress”

The BBC report on yesterday’s announcement that EU leaders are ready to take “determined and co-ordinated action, if needed, to safeguard financial stability in the euro area as a whole”, as the Greek government attempts to tackle its debts and budget deficit, is as good a starting point as any – linking as it does a lengthy post by the BBC’s own Stephanie Flanders. In turn Flanders quotes Martin Wolf in the Financial Times

“So long as the European Central Bank tolerates weak demand in the eurozone as a whole and core countries, above all Germany, continue to run vast trade surpluses, it will be nigh on impossible for weaker members to escape from their insolvency traps. Theirs is not a problem that can be resolved by fiscal austerity alone. They need a huge improvement in external demand for their output.”

And, in a neat one-two, the Irish Times’ Arthur Beesley notes the muted market response, and indicates the depth of the dilemma for EU leaders

For the euro system and the institutional architecture that supports it, it is seismic. While the parameters of any bailout remain in some doubt, informed sources say the most likely mechanism would be the extension of bilateral loans from France and Germany or a wider group of stronger EU countries. To discourage other governments from caving in to domestic pressure over efforts to stabilise their finances, it is a given that any EU rescue package would come with stringent policy instructions from Brussels.

Still, the hope at this point is that the Greeks will be able to contain the rot. “This is about generating confidence in the stability of the euro zone,” said a European official. “It’s also about spin: spinning markets, debt-rating agencies and the press.” For all that, however, the door is now open for exceptional European support for any struggling member of the single currency. Although it is easy to conceive of special mechanisms being developed within the letter of EU law, any such aid is not in keeping with the spirit of the old rules.