Mrs Merkel's intriguing concession

Cynics would say it was the ultimate "counter-indicator". The US rating agency, Standard & Poor's has put 15 countries including Germany, France, the Netherlands, Austria, Finland and Luxembourg on "credit watch negative", on a day when many in the financial markets had started to believe that an end to the Eurozone crisis was now in sight.

Such an announcement would mean that there was a one in two chance that those countries would see their credit rating fall within 90 days.

Those same cynics would say it's a safe bet that the rating agency will turn out - once again - to be behind the curve. We just don't know whether it's today's optimistic curve - or the curve of Euro doom which markets have been on for some time.

Credit risk

Apart from the timing, what's interesting about this decision is that it makes explicit something that I and others have found troubling about the discussions of France and the potential loss of its Triple A credit rating, as a result of continued turmoil in Europe.

The missing piece in these discussions was that there were circumstances in which you could imagine France losing its top credit rating - but nearly all the scenarios in which you could imagine it doing so would be ones in which the viability of the eurozone itself was also considered to be at risk. In such circumstances, Germany and other parts of the "core' would surely be at grave risk of losing their top credit ratings as well. Presumably, this is part of S&P's rationale in choosing to consider these countries as a group. It was, for example, an unspoken subtext of the latest report on France from their rival, Fitch.

Before this news, the bond markets seemed to believe that Chancellor Merkel had ceded some important ground in her summit with President Sarkozy, declaring that private investors would not be asked to contribute to future eurozone bailouts. But they are giving Mrs Merkel, and the rest of the eurozone, the benefit of an enormous amount of doubt.

Special case

As Robert Peston has noted, Italy has been the chief beneficiary: the interest rate on Italian ten year government debt has fallen by more than half of a percentage point. The explanation being offered that investors now see less chance of being roped into a restructuring of Italy's debt, because Chancellor Merkel has said that the Greek case - where the value of privately held government debt is being slashed - will be a "one-off".

This is intriguing, for several reasons. The first point of interest is that European leaders - including the German Chancellor - have been saying that Greece was a special case, ever since the Greek restructuring deal was first announced. In fact, a sentence along these lines has been in nearly every communique or eurozone press conference since the special European Summit in July.

Another reason for intrigue is that the French and German leaders also confirmed today that the European Stability Mechanism would come into being sooner, by the end of 2012, rather than in July 2013.

At one level, you can see why this would encourage investors. The ESM has the potential to be bigger, and better, than the current European rescue fund, the EFSF, which relies on a system of guarantees by governments. In contrast, the ESM would have actual capital: E80bn paid in up front by governments, and E620bn in so-called "callable" capital. Legally, it would thus be a shorter leap for the ESM to borrow - like a bank - from the ECB, and then lend on to individual governments.

But at German insistence, the creation of the ESM is also going to come with new "collective action clauses", written into all new eurozone government debt with a maturity of more than one year. The whole point of these clauses is to make it easier for private investors to share the burden of future bailouts.

Sharing the burden

So, on the face of it, the financial markets have reacted enthusiastically today to the German Chancellor repeating what she's said before about Greece being a special case, at the same time as reaffirming a new approach to bailouts which explicitly paves the way for more private sector burden-sharing in the future. What gives?

What gives, I'm told, is that the Chancellor has agreed that the ESM will not be required, in the case of future bailouts, to make use of those collective action clauses. But those clauses will still be there, to make private sector involvement an easier - and certainly cleaner - option in the new look eurozone.

You can see why markets would be pleased that eurozone governments in future will be punished automatically if they borrow too much, and by today's confirmation that the ESM will be up and running ahead of schedule. If this kind of "fiscal pact" unlocks more action from the ECB - either at Thursday's meeting, or sometime soon - then that would be good reason for market cheer as well - at least in the short run. (As you know, there would still be plenty of long-term questions about where the eurozone's economic growth is going to come from - but you'll be relieved to hear that I'm not going into that again here.)

But to believe that Chancellor Merkel's comments about private sector involvement are a game-changer, you have to believe that she is saying, in a roundabout way, that all eurozone sovereign debt will be collectively guaranteed by member governments. This, in a press conference in which she again rejected the creation of common eurobonds, and persuaded President Sarkozy to do the same.

Perhaps it's all in the wording. Perhaps, common eurobonds "are not the solution to this crisis", as President Sarkozy said, but Chancellor Merkel is saying that they, or some other form of collective guarantee, could be the solution to the next one. But, to go back to where I began, investors are giving the French and German leaders the benefit of a lot of doubt.

The first version of the eurozone had fiscal rules that were not enforced, and an explicit legal ban on sovereign bailouts that wasn't enforced either. In the eurozone Mark II, investors seem to believe that fiscal rules will be enforced, but the new rules for punishing private sector creditors will not.

Well, I said it was intriguing.