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Maeve Dineen: Have European leaders done enough to save the euro? Probably not

Amid all the bluster on Britain being isolated from Europe, the knock-on effects for Ireland and the threat to our corporate tax rate, the more mundane question is -- did European leaders do enough last week to save the euro? The answer is: probably not.

Market reaction will be watched closely over the coming days but the truth is that we shouldn't expect much response this side of Christmas.

Traders, who have had a hell of year on the money markets, are likely to opt for a long run into Christmas and start winding down from this week. Therefore the real impact of last Friday's deal won't be seen until the new year.

By agreeing a "fiscal compact" with strict rules and semi-automatic sanctions to enforce budget discipline on individual member states, German Chancellor Angela Merkel said the confidence of the financial markets would be restored.

But for all the talk of treaty changes, golden rules and bolstered firewalls, there was no big bazooka, and the ECB remains the elephant in the room. The question now for a lot of market participants is how much Italian and Spanish debt the ECB will buy in the coming weeks.

Mario Draghi, the ECB's new president, made clear that while the ECB is the lender of last resort for Europe's banks, it is not prepared to play the same role for Europe's governments.

Traders appear to believe that the ECB cannot backstop banks effectively unless it also backstops governments and in their opinion no deal is credible without the ECB opening its coffers and offering unlimited funding to countries in trouble.

The ECB matters a lot more to the markets than any European country being left out in the cold.

But one of the main problems with the euro crisis is that the markets don't seem to understand Europe's construction.

They have failed to realise that Europe is a unique construction. The ECB is not like the new look US Federal Reserve that now appears to print money at the drop of a hat, or the Bank of England. It has its own mandate. Europe is not a country or a trade zone. It is unique and has distinct structures. Slowly these institutions must be understood and until the markets cotton on to this the crisis will rumble on.

We all know by now that markets are not rational actors and struggle to understand anything complex. Either the markets think they understand things but don't (like contracts for difference) or they just don't get things full stop.

Europe is one of those things the markets just don't get. This is costing us all a lot of heartache but it is not the markets' fault. Most citizens inside the EU don't understand the structures either. How many of us understand the difference between the presidents of the European Commission and the European Council for example?

The time is coming when Europe is going to have to simplify the institutions. This will be good for the markets -- and good for us citizens too.

Irish Independent