Blog post

Are all euro summits the same? Market perceptions before and after

Publishing date
11 July 2012

Commentators have frequently argued that all Euro Summits exhibit a similar pattern with significant euphoria after the summit in the financial markets that then soon abates when markets wake up to the actual difficulties of implementing decisions[1]. In this contribution, we study the pattern in government bond yields in the five days before and after euro area summits for Italy, Spain, Germany, France and the EFSF. We normalize the 10 year yield to 1 at t=date of the Summit and plot the yields before and after. We select five Euro Summits’ Dates of significant importance, namely the 7th of May 2010, 21st of July 2011, 26th of October 2011, 2nd of March 2011, 29th of June 2012[2].

A number of results emerge. First, it is true that government bond yields mostly revert to their level five days before the summit after 5 days. In particular in Italy and Spain, no systematic improvement is visible in any of the five summits.

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The last summit, however, stands out in terms of the performance of France, Germany and the EFSF. Yields for bonds of these three entities fell markedly by around 10% and the improvement persisted five days after the summit. This contrasts with the temporary improvement observed in Spain and Italy following the summit that only lasted for about 2-3 days. This pattern suggests that the summit results significantly reduce the risk for the core of the euro area governments while virtually no relief is given to Spain and Italy. One possible interpretation is that the creation of a banking union with a strong supervisory authority is a step towards reducing risk to the core euro area tax payers. This interpretation would be consistent with arguments developed in our research that the creation of a banking union will allow imposing greater losses on bank creditors. 

We also observe that the pattern of yield developments is rather heterogeneous on the five summits. Typically, we see a deterioration of yields up to 2-3 days prior to the meeting and then a successive decrease of yields during 5 days followed by a new deterioration. The 7 May 2010 summit was different however, as the yields increased up to the summit itself and then came down again significantly to reach levels 5 days before the summit.

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[1] See for example Munchau, “The eurozone crisis will last for 20 years“, Financial Times, 9 July 2012

[2] The Euro summit of the 7th of May 2010 stressed the need of accelerating fiscal consolidation and of creating a European stability mechanism to preserve financial stability.

On the 21th of July 2011, The Euro Summit approved the second rescue package for Greece and designed an expanded and more flexible role for the ESFS.

In the Euro Summit of 26th of October 2011, EU leaders agreed on Greek PSI package and on a new EU-IMF program; moreover, they decided to increase banks’ capital requirement to 9% of Core Tier 1 and to improve the leverage capacity of ESFS.

The focus of the 2nd of March 2012 was the job-creating growth and the strengthening of fiscal disciplines.

The Euro Summit of the 29th of June 2012 recognized the need to break the banks-sovereign loop: EU leaders proposed the set-up of euro-area supervisory authority and called for direct financial assistance by EMS/EFSF for bank capitalization.

About the authors

  • Guntram B. Wolff

    Guntram Wolff is a Senior fellow at Bruegel. He is also a Professor of Public Policy and Economics at the Willy Brandt School of Public Policy. From 2022-2024, he was the Director and CEO of the German Council on Foreign Relations (DGAP) and from 2013-22 the director of Bruegel. Over his career, he has contributed to research on European political economy, climate policy, geoeconomics, macroeconomics and foreign affairs. His work was published in academic journals such as Nature, Science, Research Policy, Energy Policy, Climate Policy, Journal of European Public Policy, Journal of Banking and Finance. His co-authored book “The macroeconomics of decarbonization” is published in Cambridge University Press.

    An experienced public adviser, he has been testifying twice a year since 2013 to the informal European finance ministers’ and central bank governors’ ECOFIN Council meeting on a large variety of topics. He also regularly testifies to the European Parliament, the Bundestag and speaks to corporate boards. In 2020, Business Insider ranked him one of the 28 most influential “power players” in Europe. From 2012-16, he was a member of the French prime minister’s Conseil d’Analyse Economique. In 2018, then IMF managing director Christine Lagarde appointed him to the external advisory group on surveillance to review the Fund’s priorities. In 2021, he was appointed member and co-director to the G20 High level independent panel on pandemic prevention, preparedness and response under the co-chairs Tharman Shanmugaratnam, Lawrence H. Summers and Ngozi Okonjo-Iweala. From 2013-22, he was an advisor to the Mastercard Centre for Inclusive Growth. He is a member of the Bulgarian Council of Economic Analysis, the European Council on Foreign Affairs and  advisory board of Elcano.

    Guntram joined Bruegel from the European Commission, where he worked on the macroeconomics of the euro area and the reform of euro area governance. Prior to joining the Commission, he worked in the research department at the Bundesbank, which he joined after completing his PhD in economics at the University of Bonn. He also worked as an external adviser to the International Monetary Fund. He is fluent in German, English, and French. His work is regularly published and cited in leading media. 

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