The economic news from Europe last week was significantly better than it had been for some time.

Friday the 29th of June 2012 will go down as one of the most important dates in the history of the Euro currency. In the early hours of that fateful morning German resistance to a rational and comprehensive resolution to the Euro crisis was finally crushed. It will take some time for the full implications of this historic result to filter through to the markets but the fact that the dark cloud of dissolution of the Euro is now passing can only be positive.
 
What happened? Why did Angela Merkel the German Chancellor finally "blink in earnest" as suggested in our article two weeks ago? The answer is she was outmanoeuvred by Italy and Spain with the tacit support of France. In essence she was totally isolated. Here is what SPIEGEL, the German online newspaper had to say about events:
 
"Angela Merkel took a tough stance ahead of the EU summit, insisting she would not make concessions. But Italy and Spain broke the will of the iron chancellor by out-negotiating her in the early hours of Friday morning. Germany caved in to demands for less stringent bailouts and direct aid to banks."
 
The key to getting your way in tough negotiations, of course, is to find your opponents Achilles' heel. Italian Prime Minister Mario Monti and Spanish Prime Minister Mariano Rajoy did that on Thursday night and early Friday morning in Brussels. And the result is a euro-zone agreement to allow the common currency bailout funds to give direct help to ailing banks and to become active on sovereign bond markets to provide relief on the financial markets -- free of conditions for the countries in need of such aid.
 
With good reason Monti emerged from the late-night negotiations as a clear victor, having broken Chancellor Angela Merkel's resistance. Monti, together with Spanish Prime Minister Mariano Rajoy, secured easier access to the permanent euro-zone bailout fund, the European Stability Mechanism (ESM). Euro-zone member states which fulfill the budgetary rules laid down by the European Commission can now receive aid without agreeing to tough additional austerity measures. Strict oversight by the troika of the European Commission, European Central Bank (ECB) and International Monetary Fund (IMF) would no longer apply.
 
The agreement will allow the ESM to recapitalize troubled banks directly instead of loaning the bailout aid to national governments in exchange for austerity commitments. That model had been called into question after the EU agreed recently to provide Spain with €100 billion to prop up its struggling banks. Investors, however, became nervous about Madrid's ability to shoulder that debt, and interest rates on Spain's sovereign bonds had skyrocketed in recent weeks.
 
In addition, emergency aid funds will in the future be made available to stabilize the bond markets without requiring countries, providing they are complying with EU budget rules, to adopt additional austerity measures. Prior to the summit, Merkel had been against both steps, preferring to stick to the rules that had already been hammered out and guaranteeing strict oversight."
 
From my own perspective it is astonishing that it has taken so long for the twin elements of the crisis to be identified and segregated. Up until now, under German insistence, they had been joined at the hip. What do I mean by this? Well prior to Friday the 29th Dr. Merkel was insisting that any assistance to banks must go through Governments.

The Angela Merkel tricolour that went viral online is now helping an Antrim kid beat cancer.