All eyes were on Brussels this week, where a country long without a government suddenly and surprisingly experienced a surfeit of leadership.
Before the summit, the feeling in the market was “plus ça change”. Another meeting, another deadline, another disappointment in waiting. Not many people had long positions into Wednesday night, but a few traders might have kicked themselves for not betting on Angela Merkel. Markets bounced high on Thursday morning after a deal was agreed.
Headline writers would probably have preferred a collapse of the deal. “Eurogeddon” appeared on a number of reports and television channels.
With a crisis unfolding at the sometimes glacial pace of supranational politics, producers on 24-hour news channels have had to work hard to turn the intricacies of Euroland into arresting TV. This has meant that deadline after incomprehensible deadline has been created, often disappointing the markets by passing without any conclusive outcome.
These technical, multilateral negotiations conducted by interchangeable, inscrutable acronyms do not lend themselves well to sound bites and short news cycles, and there is little doubt that a degree of artificial drama has added to volatility over the past year.
Naturally, there is a long way left to go, but the grand political statement made at 4am on Thursday morning – or more importantly the clarity over the size of Greece’s haircut, the bailout fund and levels of bank recapitalisation – have taken Europe a step along the road towards greater stability, rather than kicking the can down it.
Bank stocks were big gainers on Thursday, but it probably will not be enough to cheer bankers in the UK, many of whom face an uncertain future going into the New Year.
City bonuses are due to fall 38%, and 27,000 jobs will be trimmed across 2011-12, according to the Centre for Economics and Business Research.
On the same day, figures from Income Data Services said that FTSE 100 directors are seeing their pay jump by nearly 50%, on the back of bigger bonus pools.
While it might appear counterintuitive, in some ways this reflects a real gap in the European economy that more than one analyst has noted – that for the past year, corporate earnings have not been all that bad.
While the banks have been battered by the eurozone sovereign debt crisis, rogue trading scandals, new regulations and public vitriol, blue chip companies have, in the most part, survived. Many have cut back on investments and hiring and are holding onto their cash, which makes their directors’ pay awards poorly timed at best.
Banks are being hauled over the coals for rewarding their employees for taking risks, and corporate directors are facing the same treatment for taking none. While the government wants banks to cut back on their risk taking and innovation and go back to traditional models, it needs big corporates to go the other way. Doing so through tax incentives or other such measures is unlikely to be well received by
Pushing for growth without appearing to take the side of the fat cats is going to be very difficult, and even more so for a Conservative government to articulate. It is a circle that is going to be difficult to square around the world, and it comes as little surprise that across Europe and North America there are directionless, leaderless movements for unspecified “change.”