The European Financial Stability Facility is there

EU Law (Wordpress) writes about the fact that the legal framework for the Euroepean Financial Stability Facility - the mechanism to handle the big bailout money - is in place now and describes its details. Worth reading!

500 billion Euros

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Update 1: Here are the official Council conclusions!

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Update 2:
Just to put this into perspective: 60 years and one day after the Schuman declaration, a group of 27 states (or 16 in the case of the Eurozone) has just decided, basically in one meeting, to launch a stability package that is far beyond imagination and that is designed to secure financial security of the EU member states and the stability of the Euro.

We are not talking about soft issues and week diplomatic declarations, we are talking about a huge thing with hard economic consequences. We are witnessing a European Union that has cleared entered a new stage of supranationalism with this decision.

It is fascinating, I must admit.

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On hour ago, the Finance ministers of the European Union have decided to secure the Euro with 500 billion Euros.

I've watched the press conference with Commissioner Rehn and Spanish Finance Minster Salgado in the web stream and I also live-tweeted.

Here is what I understood (the official decisions have not yet been published on the web)*:

The 500 billion are split into two different mechanisms. The first is a "community mechanism" based on Article 122(2) of the Treaty on the Functioning of the European Union:

"Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control, the Council, on a proposal from the Commission, may grant, under certain conditions, Union financial assistance to the Member State concerned. The President of the Council shall inform the European Parliament of the decision taken."

Commissioner Rehn said that this article applied because the financial stability of the European Union and the Eurozone were threatened by the present situation, and that this situation was out of the control of the member states. The 60 billion Euro under this mechanism are managed by the Commission and are quickly available if needed.

The second mechanism is called a "special purpose vehicle" and it is an intergovernmental agreement between the Eurozone member states. In case that more than the initial 60 billion were needed, another 440 billion Euro could be made available by the member states of the Eurozone. In case they were requested, it would need unanimity of the Eurogroup to get the money released and the timeframe would be similar to the mechanism established for Greece (some weeks).

The 500 billion Euro from both mechanisms could, in addition, be supported by up to at least 250 billion Euros from the International Monetary Fund (IMF).

In addition, member states have agreed to take fiscal measures to reduce their deficits. Spain and Portugal seem to have given special promises to tackle their budgetary situation with addition measures.

Altogether, the 11 hour negotiations of the EU finance ministers seem to have lead to a comprehensive and massive packaged that should show to financial markets that the Eurozone is ready to act to secure our currency.

PS: It is also worth reading Charlemagne's blog post, especially his late-evening and night updates at the end of the text.

* Please verify with the official decision taken; I was just listening to the press conference audio stream (English version).

Greece: 110,000 million Euro & smiling faces

Diplomatically spoken: I took note of the Eurogroup statement issued Sunday evening.

I don't want to talk about the decision itself, it's big enough for the traditional media to notice, so why spend a blog post on the matter? Just wanted to leave a little comment regarding EU communication:

If I was responsible for the press releases at the Spanish EU Council Presidency, I wouldn't have written "110,000 million" when I could have written "110 billion" and I wouldn't have chosen a photo with smiling faces for a press release announcing an international aid package that should leave anybody involved sweating and crying.*

But luckily, I am neither responsible for the Spanish presidency's communication nor for financial decisions that are beyond human imagination.

* Alan Fisher at "The Europe Blog" has a much more appropriate picture for the news.

Greece, boredom and representative democracy

I am so bored by news on Greece.

I have understood that the country is in financial trouble and that this could threaten the Eurozone and the Euro. I have understood that Eurozone leaders aren't willing to give unconditional help but that some kind of support might be necessary to get Greece out of the shit. I have also understood that not everyone in Greece seems to share the assessment of the situation.

But why do we need so many reports around this topic? I as a citizen cannot do anything about that, this kind of thing is exactly why I have elected officials and their administrations. That is why I have representative democracy supported by technical experts. Let them take a decision that doesn't ruin our monetary system and then let's move on.

Since I will not get an informed idea what would be the best solution because that is a pretty complex matter and I don't have an administration around me to explain all the concrete consequences, I won't have an informed opinion about the topic.

So I also don't need press and blog discussions about this or that monetary fund and this or that measure to save money and there. They don't explain the real consequences, they talk about the politics of the matter, making the situation more complicated instead of easier.

I don't know, maybe I am wrong, but I am bored to death hearing about the Greece thing in the press.

PS.: To our politicians: Just take a decision and explain it to us. If we don't like it, you won't be re-elected.

Should Ashton be in Haiti? (supplemented)

Jean Quatremer has covered the fact that EU foreign minister* Ashton has not been in Haiti and that EPP and the Liberals complained about that today.

I don't agree with these complaints, especially since her people have been working over the weekend as you can see on this special website on Haiti, which indicates the work that has continued over the weekend and the last days even though Ashton was in London.

But the main reason why I don't agree is the following:

The Haitian air space has been so busy lately that the most needed goods and materials could not be transported into the country. The situation of logistics in Haiti is still not solved. International leaders travelling to the country need a special security treatment and are thus slowing down the processes on the ground, which isn't helping the people.

And being there. Ashton could not do anything but have a look and talk into the cameras, maybe getting attention for a topic that has enough attention these days.

In my point of view, our foreign minister should focus on co-ordinating political and financial efforts in the EU from over here. She should make sure that member state and the EU institutions (Council and Commission in particular) organise themselves in a way that is most helpful for the population of Haiti.

I prefer the politics of doing things over the politics of pretending to do something, and flying to Haiti now would be exactly this kind of move. Ashton should go to Haiti in half a year, when most of the international focus might have moved away, honouring those who have worked hard for six month to help as much as they can.

By going there not now but later in the year, Ashton could make sure that European and international attention is kept on this country that will suffer from the earthquake for the next years and thus will need aid beyond the immediate crisis response we see at the moment.

So today, Ashton's place is in the EU and her task is to make sure we do our best to help the people of Haiti, and as soon as her presence on the ground is needed to support these efforts beyond a short-term outburst of help, she should fly there - but only then!

Supplement: The critical remarks on the lack of concrete reactions of the European Union, or at least their delay, by the Bruxelles 2 blog seem more convincing than the Quatremer's article.

*I have decided that, within this blog, I will call Ashton "foreign minister" (without capitalising the two words) as the same post was described in the initial Constitutional Treaty text that became the Lisbon Treaty later. The "High Representative for Foreign Affairs and Security Policy" is too long and just "High Representative" is not precise enough.

French finance minister praises EU co-operation in Jon Stewart's Daily Show

In an excellent English, and with true conviction, the French finance minister Christine Lagarde yesterday praised EU work and co-operation in the times of the economic crisis in the US-American comedy news "The Daily Show with Jon Stewart".

The Daily Show With Jon Stewart	M - Th 11p / 10c
Christine Lagarde
thedailyshow.com
Daily Show Full Episodes Economic Crisis Political Humor

This is excellent ambassadorship for the European Union, not like some of her UMP colleagues!

The Czech EU-Council Presidency (13): Absence in times of the crisis

From eurotopics:

"Martin Schulz, chairman of the Socialist group in the European Parliament, has called the Czech EU Council presidency a "total washout". The Prague business paper Hospodářské noviny can only agree: "It seems it's too much to ask of the Czech presidency that it participate in discussion on the crisis. [...]"

Proof of its unimportance: In the International Harald Tribune report on the outcomes of the EU summit, there is just a short line mentioning the Czech presidency while focussing on Barroso and given similar space to Germany and Poland. Doesn't sound as if there has been much leadership from the Presidency.

And so it seems like the Czechs will not be remembered as the most active and relevant EU Council presidency...

The slowness of the EU Council during the financial crisis

On 04 April 2008, the

Memorandum of Understanding on co-operation between the Financial Supervisory Authorities, Central Banks and Finance Ministries of the European Union on cross-border financial stability

was signed, and one of the issues is the creation of so-called "Cross-Border Stability Groups:

5. The cooperation at a cross-border level can be enhanced further by the establishment of Cross-Border Stability Groups to focus on the issues relating to potential problems in specific firms, markets or infrastructures that are significant for all members of the group.

Now, almost one year later, I read in a draft Key Issues Paper for the Ecofin Council as a contribution to the Spring European Council, as prepared by the Economic Policy Committee and the Economic and Financial Committee (PDF) the following sentence:

[T]he establishment of "Cross-Border Stability Groups" among relevant Member States is important for ensuring effective cooperative arrangements among authorities, both in the short and longer term.

Does this mean that in one year nothing has happened? If this is such an important element that it was among the 11 lines of the MoU of 2008, why is there nothing but one sentence in a 14 page document of 2009?

I know that this just a minor issue, but its one of these many issues that take years and years, keep diplomats, administrators and ministers discussing but which in fact never develop.

Waste of time. Political deliberation for the sake of political deliberation. Lack of follow-up, lack of speed, lack of consistency.

Aaaaahhh!

Alpha.Sources: "The glass is half empty for CEE countries and the EU after the latest summit"

In an amazingly well-written post, Alpha.Sources discusses the outcomes of the EU summit on the economic crisis last weekend.

Claus focusses on the situation in Central and Eastern Europe (CEE) - thus the eastern EU countries, a category that has recently been discussed in this blog and beyond.

But Alpha.Sources' remark on the issue is the best I have read so far:

I cannot help but feel that pointing towards heterogeneity amongst the CEE is rather like pointing towards heterogeneity in the context of critical patients on an intensive ward. Surely, one patient may be closer to the brink than another but common to all of them is that they are in pretty bad shape.

His overall conclusions on the outcomes of the summit are semi-negative, seeing the glass half-empty instead of half-full:

Ultimately, a much more systemic perspective is needed here and we need to realize that a case by case approach does not work. This does not mean that the CE economies are not different; it merely means that the EU and the Eurozone need to see this as an integral part of the fight to keep the economic edifice from crumbling entirely.

But read the complete post to understand how he gets to that point!

(The text is cross-posted on A Fistful of Euros and Eastern Europe Economy Watch)

European Council on 19 and 20 March 2009: Draft Agenda

According to the draft agenda, the European Council will deal with the following issues during its session on 19 and 20 March 2009:

• The financial crisis and the measures in its context
  
• The G20 Summit on 2 April 2009
  
• Energy and climate change
  
• The Eastern Partnership
  
• The Union for the Mediterranean
  
• The Lisbon Treaty
  

Sounds quite heavy what our heads of state and government will do in two days.

CEE countries united for EU rescue plan

The countries of Central and Eastern Europe (see the discussion: Is there something like CEE?) in the European Union will have a separate co-ordination meeting ahead of the EU summit on 1 March.

They are afraid to ignored in the possible EU rescue plan, and will try to form a common front against the old and rich(er) EU member states.

I am not sure whether this is a good sign.

It hints to the fact that behind the scenes there is not much unity, that in the administrative and diplomatic levels of the Council member states are bargaining. It is a bad sign, because it means that a unified approach to the financial crisis will not be the result of shared interests but of political games.

It is a bad sign, and I hope it will not get too ugly.


Read also (21 February 2009): Barroso will join the CEE meeting

New crisis in Georgia?

Well, it doesn't look like a new war in Georgia (despite the recent dispute over an allegedly deserted soldier with Russia), but it seems as if the Caucasian country faces internal troubles:

Georgia's scattered political opposition gathered Thursday to demand the resignation of President Mikheil Saakashvili and called for early presidential and parliamentary elections. [...] The declaration Thursday involved the broadest coalition of opposition groups to date [...].

Looks like a very typical movement in semi-autocratic countries where confrontational democracy-imitating politics meets rather autocratic leadership.

I am not sure that I find this very encouraging for the peace in the region; hopefully Mr. Saakashvilli will not use this to run a new confrontational course with its neighbours in order to re-produce the boost in popular acceptance he had last summer.

The regulation of executive pay in the European Union: Latest developments

You might remember that in early October I pointed to draft Council conclusions on executive pay.

The Council did not stop to work on this matter and has now published a report summarising the actions of member states and the Commission with regard to the regulation of executive pay:

• Following discussions earlier this year in the Eurogroup and ECOFIN of national frameworks regarding executive pay against the background of the Commission recommendation, a large number of Member States have strengthened legislative measures and/or codes of conducts, or plan to do so in the near future.

• In the context of national rescue packages for the financial sector, many Member States have included in their schemes provisions regarding the remuneration of executives in the concerned institutions. They aim at limiting the compensation and/or adjusting the incentive structure to limit excessive risk-taking and to gear decision-making towards longer-term profitability.

• Another focus of measures undertaken recently is on improving transparency of compensation components, in some countries disclosing up to the individual level, to give shareholders and responsible committees more information - and partly also introducing a shareholders' vote - on remuneration issues.

• Some countries have also taken action with respect to severance pay, either limiting the compensation as such or linking it to specific performance requirements.

• One country [Remark: this is Italy; JF] has revised the favourable tax regime in place for variable pay components, subjecting it to the personal income taxation.
  

The report lists measures of 20 EU member states, and if you are interested how you country is trying to interfere in private business for (mostly) symbolic reasons, have a look in the document.

The European Commission, as we learn, is also working on the topic and we can expect "initiatives on these issues to be part of the "financial markets for the future" package scheduled for early 2009".

Altogether, I am not a big fan of such kind of politics, since they are full of symbolic and populist measures that (luckily) mostly just scratch on the surface in order to satisfy popular demands without alienating businesses.

Barroso "incompetent" says former foreign minister Fischer - corrected and updated

Via Coulisses de Bruxelles I found an article published on Monday in the French daily Le Figaro in which former German foreign minister Joschka Fischer (Greens, pragmatic left) calls EU Commission President José Manuel Barroso "incompetent".

In this article titled "The crisis - a chance for Europe" Fischer said the following (own translation):

"The incompetent President of the Commission has seen its mandate renewed for five years thanks to his inoffensiveness. Unfortunately, this is also Europe."

The rest of the article is what we have heard from many other mouths these days: Europe needs effective financial and economic governance and the global financial crisis is the perfect moment to put this into place.

But what will remain from this article is that Barroso is "incompetent".


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Correction
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Everything I write above is true, however, there is an English version of the article by Fischer published in New Europe already on 03 November 2008. The paragraph cited reads there:

An incompetent president of the Commission has had his term renewed for another five years as a reward for his innocuousness. Alas, this, too, is Europe.

I am not sure, what is the original version, but since "New Europe" has an earlier date on the text, I wanted it to be mentioned here.

Update:

In a comment to this article, Erik has linked Fischer's commentary in a German version, which according to the respective site has been published in October.

Erik also correctly remarks that in the German version, Fischer compares the incompetence of Mr Barroso to the incompetence of the German Minister of the Economy, Michael Glos, something missing in the foreign versions of the text.

Altogether, the text is available in English, Spanish, Russian, French, German, Czeque, and even Chinese.

The financial crisis: French EU-Council Presidency on the financial architecture

The French EU-Council Presidency proposes to EU countries the setting-up of a specific global financial architecture that would be proposed during the World Summit in Washington on November 15.

In its Presidency note (PDF) published on Friday, 31 October 2008, the French presidency starts with complimenting the work of the European Union:

[T]he European Union displayed decisive leadership. It should remain proactive and ambitious so as to enhance the present financial architecture, in international fora and dialogues, as well as in the prospect of the Summit called for by our Heads of states and governments.

Then, it continues with the list of principles that the international financial architecture should follow:

1. Ensure that our frameworks are not excessively biased towards the short-term
   


2. Ensure increased responsibility of all the financial actors, notably along the credit chain,
   


3. Work towards properly enforced and extended transparency on all the segments of financial markets
   
4. Ensure more consistency across standard setters and across regulatory and oversight frameworks with a common aim to promote financial stability
   


5. Better anticipate risks and appropriate risk management based on an enhanced cooperation between institutions
   

Based on these principles ("values"), France is proposing the following objectives ("orientations"):

1. Strengthening and broadening the scope of global oversight of financial markets
   


2. Promoting a global approach of risks
   


3. Reinforcing the legitimacy of the global financial architecture so as to better promote coordination and crisis prevention
   


4. Addressing global challenges of the 21st century
   

And along these "orientations", a number of possible shortcomings are mentioned - inter alia, that financial mechanism in some countries are not appropriately adapted to the needs of the 21st century, and that in some countries oversight mechanisms do not cover all sectors of the economic and financial markets.

On the last page of the document, the French EU-Council Presidency proposes 11 possible commitments EU leaders could (!) agree on during their informal meeting on 7 November.

These draft commitments would then be proposed to the G20 world financial summit in Washington on 15 November:

1. Increase transparency on financial markets and take the necessary steps not to let any financial institution, market or jurisdiction outside the scope of regulation or oversight
   


2. Submit rating agencies that provide public ratings to registration and to governance rules and to appropriate monitoring of their activities
   


3. Draw up codes of conducts to address incentives to excessive risk taking in the financial industry, including through compensation schemes
   


4. Reconsider accounting and prudential standards where necessary to improve their mutual consistency, facilitate coordinated supervision and control, raise the margins of safety of the system and mitigate pro-cyclical effects
   


5. Regarding capital adequacy standards, harmonising capital definition to ensure an homogenous quality of capital
   


6. Promote proper risk-magement incentives regarding securitization, including considering the impact and effectiveness of requiring originators to retain a share of their issuances
   


7. Reinforce cross-border cooperation between supervisors and regulatory authorities, especially to oversee activities of cross-border groups
   


8. Promote a change of culture in the governance of financial institutions towards sustainable value creation. Risk control mechanisms in financial institutions should be enhanced and placed under direct responsibility of senior management, notably to prevent significant operational incidents in market operations
   


9. Review improvements in liquidity risk management and promote a consistent approach for cross-border groups
   


10. Encourage an internationally coordinated response to the macroeconomic challenges to come
    


11. Formulate concrete solutions to improve the international economic governance
    

These conclusions are too far reaching and too general at the same time. Although most of these do not really include legally binding instruments, they reach quite far and concern a wide range of market regulation, something many countries will not agree to, while other will demand even more concrete regulatory steps.

Taking into account the results of previous European Councils, we will end up with two or three main commitments and some weaker conclusions. Additionally, a number of working groups might be proposed, leaving results open.

On 15 November at the World Summit, these will be further watered down, and instead of commitments we will get conclusions of good will, non-binding, leading to further discussions that will bring results long after the crisis or way too late to have any influence on its outcome.

But the heads of states and governments will sell it as a big success - some will say they saved the market economy, others will tell their populations they contained the ambitions of uncontrollable markets.

Standard procedure. So, I am really looking forward to the evenings of November 7 and November 15...

Le Monde: Jonathan Littell about Georgia

If you are able to read French, I would like to recommend to read Jonathan Littel's article for the French newspaper Le Monde about his recent visit to Georgia.

This is an impressive description of the local situation - open, direct. A quite different view on the reality from what we have gotten in the mass media so far. A much stronger view at the different stories and about the way they are constructed. Let me especially quote on paragraph (own translation):

"The [Georgian] government has therefore hired a Belgian communication agency, Aspect Consulting, to promote its version to the outside world. Its founder, Patrick Worms, whom the Russian media have baptised "the master of tshorny PR, of black communication", has place a network of teams in all European capitals, to send out information and "spin" that are supposed to support the reports of his employers.

Besides these more political observations, Littell also reports from different visits on to the South Ossetia and the bordering Georgian areas, he describes the suffering and the hate of the local population, ethnic cleansing, dead bodies on the streets, the problems to get credible reports, Georgian prisioners in court of the South Ossetian Ministry of the Interior, propaganda, a very professional Russian army, and the thoughts of different people - soldiers, press officers, locals.

Altogether, an impressive report, balanced, with insight, critical but fair. And as far as I have read somewhere, the longest article Le Monde has every printed.


Background:

Jonathan Littell has written the incredibly fascinating and extremely controversial novel "Les Bienveillantes" (engl.: "The Kindly Ones"), describing major events of the Holocaust and of World War II from the eyes of an SS administrator. Some of the events play in the region, and Littell hence has some more insight into the "field", more than some of the western journalists that have tried to understand what happend.

Concering the book: I have read it, and it is breathtaking. But if you read it, you should read it in French. I have seen some extracts in German, and they lack the strength of the original text.

Let's solve multilateral problems unilaterally

Sometimes I ask myself why we have created a political, economic, and monetary European Union.

As EUobserver titles in an article, a mini-summit in Paris yesterday failed "to stop unilateral action by EU states". Sarkozy, Merkel, Brown, Berlusconi, as well as the two financial Jean-Claudes, Juncker and Trichet, had met in order to find common solutions, but as so often in European Union politics, their only joint action is to say that unilateral actions are prefered.

Amazing!

Sarkozy is cited:

"We have taken a solemn vow as chiefs of state and government to support banks and financial entities to face the crisis. Every government will use its own system for that, but in co-ordination with other member states."

For me its sounds rather like a "sole vow" than a "solemn vow". But at least they could have a nice meeting in Paris. Many people do that on Sundays, so why not our political and financial leaders?!

Number of solutions produced: ZERO.


Read also:

- the article by the Coulisses de Bruxelles
- Grahnlaw's related article on "EU: Excessive government deficits"

European leaders look to the United States (supplemented)

With ironic amusement and disbelief I am looking at our European leaders who themselves are looking with fear in their eyes to the United States of America, hoping for the US taxpayer to save the world.

When you hear the European Union's trade Commissioner say that everyone is waiting the US to react on the crisis, and when the Commission's spokesman Johannes Laitenberger is quoted that the crisis is US made and that therefore the US has a "special responsibility" to solve it, this does not sound like self-confidence.

It rather sounds like the little brother is looking up to his big brother, waiting for guidance although the whole family is in troubles.

It is a sign that our own leaders where relying on strength and stability of a global system de facto dominated by the United States without taking preventive measures for a scenario that was kind of foreseeable. Already during university my political economy professor told me that the US economy was based on massive debts and that sooner or later it would crumble.

And French International Monetary Fund managing director Strauss-Kahn says that his organisation had warned in April that the crisis would reach 1 trillion US-Dollar losses, but "people did not want to listen".

So please, nobody should tell that what happens today is totally unexpected, except for the fact that the mortgage gambling made thinks worse than expected.

Now individual countries like Ireland take their own measures to save their banks - with taxpayers money. The German, British, and Benelux governments step in with massive guarantees for major banks in their countries. And the European Central Banks opens its doors to provide the Euro area with money (which doesn't even work) - and asks other banks to so, too. Mhhh, money!

That is rationally handled panic.

And in this time, someone like Sarkozy is looking for Europe to "take a greater hand in global decision making".

Our stock exchanges are just waiting for the United States to take a decision on the "big bailout" (cf.: "Big Bang") - but Europe wants to lead the world. Our economies will decline because US consumption will drop significantly - but Europe wants to lead the world. British bankers cry on the streets because their US mother companies fell apart - but Europe wants to lead the world.

My interpretation of this situation is that this is not only an economic crisis. It is a crisis that shows that the political systems were not prepared for a foreseeable situation. They have to react with massive measures because they did not have any plan for more sound reactions. It is not a failure of the market economy, it is the failure of leadership.

And so everyone is looking to the United States of America. At home, we correct the cosmetics, pump in liquidity into our own markets, but the real fear factor is this funny little world power between the Pacific and the Atlantic Oceans. Europe cannot solve the crisis on its own, it has to hope and wait for his big brother. And the US-taxpayer.

The European polity only is made to correct cosmetics. It is made to make things look nice and clean. But it is not made to solve huge problems that occur with a quicker speed than the speed of our institutions - it can only hope that through its cautious work some problems do not even arise. But the Georgian crisis and the world financial crisis show that we are quite far away from being optimistic even in that respect.

European leaders look to the United States. They lead the cosmetics, but they are led but an half-dead body below the make-up that will not be healed by paint. It needs some tougher pills... let's hope that the US will find some - our leaders won't!

Lavrov on Ukraine

The Frankfurter Allgemeine Zeitung (FAZ), one of the two largest quality newspapers in Germany, has published a letter by Sergey Lavrov in today's edition.

While most of the content is known to everyone who has followed the recent Georgian crisis, I would like to quote some words concerning Ukraine:

It is also on the West to make a strategic choice. Forcing Ukraine into the role of a buffer zone between Europe and Russia would mean to downgrade Ukraine. Instead, we should jointly design our relations to the world, in particular because Russia as well as Ukraine are an inseperable element of Europe, its culture, politics, and economy.

I don't agree with many things in this letter, but I at least agree with these lines.

If they would stand alone, they could sound reasonable. However, they are connected to much more confrontational rhethoric, which - not surprisingly - raises doubts over their honesty.

Analysing the European Council conclusions

Last week I was asking what to expect from the European Council. Now we can see what we got.

Looking at the text of the final declaration from a diplomatic angle, it starts pretty tough:

The European Council is gravely concerned by the open conflict which has broken out in Georgia, by the resulting violence and by the disproportionate reaction of Russia.

"Gravely concerned" in connexion with a "disproportionate reaction of Russia" in the very first sentence of a declaration by the heads of state and government is considerable.

Similar things could be said about the beginning of the second paragraph:

The European Council strongly condemns Russia's unilateral decision to recognise the independence of Abkhazia and South Ossetia.

The addition "strongly" is a clear sign of a general agreement on the evaluation of the situation within the European Union.

The next paragraphs are rather empty and not really worth noting, most of the issues have been reported in the news. But I found an interesting indication for further policy work of the Union in the upcoming month:

The European Union considers that it is more necessary than ever to support regional cooperation and step up its relations with its eastern neighbours, in particular through its neighbourhood policy, the development of the "Black Sea Synergy" initiative and an "Eastern Partnership" which the European Council wishes to adopt in March 2009; to this end it invites the Commission to submit proposals in December 2008. In this context the European Council stresses the importance of the forthcoming summit between the European Union and Ukraine on 9 September.

It seems as if the crisis will speed up some of the political developments in the cooperation with the eastern neighbourhood of the European Union, and I think that this actually positive. Some western countries might not have felt the pressure to get towards a new phasis of cooperation without the events in the Caucasus, so at least some little developments in this area are now coming up quicker than expected.

The text concludes noting that

With the crisis in Georgia, relations between the EU and Russia have reached a crossroads. The European Council considers that given the interdependence between the European Union and Russia, and the global problems they are facing, there is no desirable alternative to a strong relationship [...].

From my point of view, this is a realistic conclusion, and the fact that no sanctions are to be applied on Russia is the only reaction that makes sense seeing the kind of interrelation that we face on this continent.

However, I am sure that this summit has proven that the relations of the European Union to Russia have changed considerably after the Caucasian crisis. But I also think that with a view to working for a less conflictual situation between the countries and peoples of our continent, some intelligent restraint from the side of the EU is in the end a rather positive sign than actually a sign of weakness.