Sedan again as Germany imposes terms

Bismarck conversing with Napoleon III after the Battle of Sedan, 1870

German victory. Defeat for France, Spain, Italy, and the Greco-Latin sphere.

My instant impression from the leaked EU summit draft - obtained by our indefatigable Brussels correspondent Bruno Waterfield – is that the accord is minimalist, and largely a German Diktat. It has the makings of a diplomatic Sedan 1870.

If this is what landed on Nicolas Sarkozy’s desk at the Elysee yesterday, one starts to grasp, sort of, why he left Carla Bruni to labour alone as he dashed to Frankfurt to meet the two other women in his life, Chancellor Angela Merkel and IMF chief Christine Lagarde, as well as the European Central Bank’s old and new chiefs.

This document is not final, of course. Mr Sarkozy knows how go full-throttle histrionic, throw a fit, play the war guilt card, scream, shout, and even threaten to walk out of Emu (as he did in the May 2010 summit). He is so mercurial and impetuous that he might actually do something shocking if Germany refuses to meet him half way.

The text may well be very different by Sunday. It had better be.

1) There will be no change to the mandate or role of the ECB. The doctrine of "Price Stability" is upheld. (That is not the historic role of central banks, by the way. They were created in the 17th century to be lenders of last resort, as was the Fed before World War One. The idea that their chief task is to manipulate a single variable – the price level – is both new and misguided.)

There is no hint that the full firepower of the ECB will be harnessed to solve this crisis, as demanded by France, the US Treasury, the IMF, and much of the City. In my view this refusal to deploy the ECB is a colossal error, and will doom the summit outcome to failure.

2) There will be no move to fiscal union in the way we all understand it: no eurobonds, fiscal pooling, no big transfers. Zilch, as expected.

The so-called "Six Pack" of proposals for closer EU economic government relate to the policing of budgets, and such like. They are a means of imposing austerity, not sharing debts. This is what Germany means by "Fiskalunion". It is a loss of sovereignty for one purpose only.

The deflationary bias of the EMU system remains in place.

3) The permanent bail-out fund (ESM) will be brought forward from June 2013, but there is no date. The purpose of this trick is to allow the existing €440bn EFSF and ESM to operate at the same time, giving the rescue machinery greater fire power. OK, but rating agencies might notice. So will investors. Surely double-edged?

4) 5) 6) are kicked into touch until finance ministers gather on Friday. These cover the leverage of the EFSF, the scale of haircut for Greek bondholders, and the scale of bank recapitalization ( apparently now just €80bn, which is not going to do the trick).

There is an "unequivocal commitment" that haircuts will be confined to Greece alone. If you believe that, I have some ocean-front property to sell you in Alsace.

Fresh details soon.