An uneasy calm

The lull before the storm?  The markets are marking time, waiting for the outcome of the EU summit.  Next week could see a veritable storm, but which way will markets move?  The hope must be upwards,  but the fear is that there will be a negative reaction to the outcome of the summit.

The portents for good news are thin on the ground, the likelihood the news will be bad is a strongly held view.

The Standard & Poor's assessment of the position in the eurozone has gone down like a lead balloon. What did S & P say?

"Policymakers appear to have acted only in response to mounting market pressures, rather than pro-actively leading market expectations in a way that might have better supported and strengthened investor confidence. We take the view that the defensive and piecemeal nature of this response has helped expand the crisis of confidence in the eurozone."

IMF chief Christine Lagarde was equally dismissive of the Merkozy plan. "It’s not in itself sufficient and a lot more will be needed for the overall situation to be properly addressed and for confidence to return."

See: http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100013647/sp-has-no-choice-euroland-risks-bankruptcy-on-currrent-policies/  and

UPDATE: From Spiegel on S&P downgrade fears:  http://www.spiegel.de/international/europe/0,1518,802244,00.html

http://www.telegraph.co.uk/finance/comment/damianreece/8937300/The-fog-on-the-Rhines-all-mein-all-mein-the-fog-on-the-Rhines-all-mein.html

To add insult to injury the EFSF  bailout fund may be downgraded:
http://www.telegraph.co.uk/finance/financialcrisis/8938191/SandP-puts-EFSF-bailout-fund-on-review-for-downgrade.html

An interesting report from the BBC: http://www.bbc.co.uk/news/world-europe-16045668  which includes the following analysis.

Analysis

Chris Morris BBC News, Brussels

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Diplomats from some of the smaller member states say they need to have a look at the fine print of the Franco-German proposals, because they want to know exactly how they plan to make this work.

It was important, they believe, to have an aura of confidence and togetherness about them at the beginning of this difficult week, but of course that aura was rapidly punctured by the news from Standard and Poor's. So we're still at a very difficult position and there's no guarantee that all countries will automatically sign off on whatever France and Germany suggest.

There's a general feeling that some sovereignty will have to be handed over. The critical question is who to. The smaller countries and Germany would like the European Commission to have a role in that. But France has always been suspicious of handing too much power to institutions in Brussels and would prefer to see those powers still in the hands of member states.

The issue of democratic legitimacy looms large.  What should be the role of the European Parliament?  How will the electorates of the sovereign states be given a say on the proposals?  The omens are not good.  the poor bloody infantry, the citizenry are mere onlookers.  Twice in the last hundred years the citizens of Europe have paid the price for political hubris.  This time it is not war but austerity being imposed as a consequence of the decision to create a flawed structure - the eurozone.

In the UK attempts are being made to ramp up the pressure on Cameron to hold a referendum.

See: http://www.telegraph.co.uk/news/politics/conservative/8937469/Debt-crisis-Tory-Eurosceptic-Douglas-Carswell-turns-up-heat-on-Cameron-over-referendum.html