This all feels rather miserably familiar. Eurozone leaders come to a dawn agreement about resolving the crisis. Markets react positively. The leaders appear on podiums to congratulate one another and themselves on reaching said dawn agreement. By lunchtime, something rather awkward has happened.
Angela Merkel, perhaps inspired by George Osborne, had done a U-turn in agreeing to use eurozone bailout funds to support Italy and Spain, but did she have the authority to do so?
In Germany, ahead of a vote in the Bundestag to approve the European Stability Mechanism bailout fund and new budget rules, the largest opposition party, the SPD, has called an emergency meeting of the budget committee to demand that Ms Merkel explain her ‘turn through 180 degrees’ to give banks direct access to the ESM. The threat is that if she does not do this in a speech in the parliament at 5pm, the euro bailout deal will not go through. This vote needs a two-thirds majority to succeed, which means the German government is relying on the opposition’s support. Merkel is arguing that parliament will have another opportunity to vote on the changes agreed overnight, and we’ll find out later whether her efforts to coax the SPD back on board have succeeded.
David Cameron has today said that Merkel had been ‘asked to do some things that are difficult for her to deliver’. He ended his address with a slightly sardonic ‘see you at another one of these before long, I guess’. The Bundestag will soon decide just how long that will be.
Still, at least things continue to look up on the markets, with Spanish bond yields falling to 6.52%, Spanish markets up 4%, and Italian markets up 4.5%. The reaction of the markets is the most important thing, after all, although real trouble in the Bundestag will not be particularly helpful.