There were three signals of note that emerged from the EU Summit, even if no new initiatives or measures were announced.
First, there was moral support for Greece as officials recognized "the determination of the Greek government to deliver on its commitments and we commend the remarkable efforts by the Greek people." By acknowledging that good progress has been made to bring the adjustment program back on track, it will be difficult to deny Greece a tranche of aid so it can service its debt that remains largely in the Troika's hands.
Second, German and non-euro area governments succeeded in slowing down the dash to establish the ECB as the sole bank supervisory at the start of 2013. Instead, European officials agreed in principle to work out the details over the course of next year.
Third, as we have noted before, and the summit drives home the point, the relationship between France and Germany has changed profoundly. Merkel is the first post-modern German Chancellor in the sense that she is not longer burdened by the Germany of the first half of the 20th century, and realizes that to secure the country's economic future it needs to assertive in pursuing its political interests. Hollande may be the first post-modern France president in the sense that he recognize France's interests lie more with the periphery, like Spain and Italy, than with the Northern European creditors.
Galicia and Basque Country hold elections this weekend. The elections notable in their own right, but also they were seen as a hurdle the government wanted to pass before formally requesting aid in addition to the 100 bln euro bank backstop. Galicia is the prime minister's home region. His party, the PP has governed Galicia for 24 of past 31 years.
Although the region' unemployment is lower than the national average, the risk is the PP are punished at the polls for the austerity and economic ruin. The PP could simply lose its absolute majority, which would be a minor slap on the wrist. The PP could be pushed into opposition and this would have greater potential to impact national policy.
In Basque Country the center-right nationalist and the center-left nationalist coalition will likely split as much as 2/3 of the vote. The talk of secession by Catalonia, which has elections next month (Nov. 23), may be emboldening nationalist sentiment in Basque Country, which is never far from the surface.
Such talk in Catalonia should be placed not only in terms of Spain's own post-Franco evolution, but also should be placed within a broader context of what is happening in Europe. It is one thing to recognize that EMU is an incomplete monetary union without a fiscal union. However, even within a number of European countries a number of wealthy regions are balking at internal transfers.
With little fanfare, the Belgium's municipal elections strengthened the hands of those who do not want to pay for the poorer part (yes the divide is also over language and cultural lines). Talk that Venice is may seek independence has also surfaced. In Germany, Bavaria is balking at continuing to make transfers not only to the debtors in Europe, but to the poorer parts of its own country. With economic hardship likely to continue these separatist forces appear likely to strengthen and further complicates addressing economic issues.
While European officials have reduced the tail risks of a blow-up, Europe itself as an ideological construct is withering away from within. The dissolution of social trust (what we have recognized as European comity), is one of the big casualties of the crisis. As difficult as it may be to repair the economic and financial damage wrought by the crisis, repairing the social contract may prove even more elusive.