EU Summit Decision: Just Kicking the Can Down the Road—Searching for Alpha for July 2012

The European Union summit held last week in Brussels resulted in three main policy changes to the current crisis. Most important, bailout fund monies can be used to recapitalize banks directly, rather than via governments. This was meant to reduce the so-called “vicious circle” of debt between governments and banks.  

The market’s reaction was significant on Friday, with most exchanges gaining nearly 3% on the news. But is this really enough to change the tide of the region’s fiscal woes? 

That is doubtful. I’ve spent the last few weeks (please see our four-part blog series on the EU) discussing how the only real, permanent solution involves Germany making significant concessions, including shared risks on further debt obligations (i.e., Eurobonds). Nothing else will really change the fundamental challenges facing the troubled eurozone.