Amid the complexities of haircuts, tier one capital ratios and special purpose vehicles, it is easy to miss the momentous significance of the latest eurozone agreement. But momentous it is – not so much for the resolution of the euro crisis as for what it says about the future of Europe itself.
As regards the specifics of the deal, it is as well to be realistic. That the plan only emerged after marathon negotiations far into the night is testament to the difficulties involved, both politically and economically. The agreement that finally came may not be quite the "comprehensive solution" touted by some European leaders last week. But it is the most far-reaching yet and should be welcomed as such. It is also considerably better than the stalemate that seemed to be looming as the talks stuttered and overran. Most striking is the response from global investors. Already buoyed by tentatively optimistic expectations, stock markets rose around the world yesterday morning, Italy's bond spreads dipped, and European bank shares soared despite the proposed 50 per cent writedown of their holdings of Greek debt.
That said, with vast swathes of crucial details still to be hammered out, it will be weeks before the effectiveness of the plan can be fairly gauged. It is one thing to talk airily of so-called "haircuts" for Greece's lenders, for example. How exactly the writedowns take place, since they remain at least nominally voluntary, is as yet unclear. Similarly, the plan to jack up the European Financial Stability Facility beyond €1 trillion is, ostensibly, a marked achievement. But putting into practice the proposals to use the existing EFSF as an insurer of eurozone government bond sales, while tempting foreign backers to put money into a parallel fund, is a task at which all but the most desperate would baulk.
In short, there are pitfalls beyond counting to be navigated around over the coming weeks and months. More concerning still, unless southern Europe can return to growth even the newly expanded bailout scheme will fall short and need a revamp. But none of the caveats, uncertainties and unanswered questions can detract from the historic shift that took place at this week's summits.
George Osborne is not alone in identifying the "remorseless logic" of fiscal union as a corollary of the single currency. But while eurozone leaders were still cavilling at the political cost and moral hazard of standing squarely behind the debts of their counterparts, there was no guarantee that any logic would be followed. As yet, there is still nothing concrete. But there has now been ground-breaking discussion of sharper fiscal surveillance, monitoring of members' budget execution, and a first report on mechanisms for closer union is to be produced by the EU President by Christmas.
Britain's Eurosceptics may cheer such developments. But the row between David Cameron and Nicolas Sarkozy last Sunday is instructive: the French President's very public umbrage at Mr Cameron's attempts to "interfere" in eurozone-specific discussions is just the first sign of the ground shifting. The Prime Minister talks confidently of Britain repatriating powers in return for treaty change, while maintaining a strong voice on EU-wide issues such as the expansion of the single market. In reality, UK influence cannot but be diminished.
The latest bailout deal will not solve the euro crisis on its own. Although the economic storm clouds may have lightened, they are far from dispersed, and the impetus of this week's fraught deal-making must be maintained in crunching through the details. But with progress towards a "two-speed" union now unequivocally begun, Europe will never be the same again. And neither will Britain's place within it.