Noises Off

The weekend saw an extraordinary meeting of leaders of the 27 member strong European Union group of nations. The main item on the leader’s agenda was how to reassure the markets that they could contain the sovereign debt crisis and ensure that financial institution across the EU were in robust enough health to withstand anything that the markets could throw at them. The sub-text was that the leaders needed to act decisively, together, to reassure jittery markets that the Euro remains a viable, going concern that will be around for the long haul – irrespective of whether they were in the Eurozone or not.

The weekend’s activities got off to a reasonable start with the curtain raising act, the Greek bailout payment, getting the necessary blessing from Eurozone finance ministers on Friday; now the next €8 billion tranche of the EU/IMF bailout requires approval from the IMF.

The meeting seems to have been long on rhetoric and short on concrete proposals. The UK Prime Minister, David Cameron, was quick to point out that the fate of the Euro will have a dramatic effect on the rest of the EU – and further afield. The Eurozone represents the UK’s largest trading partner, so the UK has a vested interest in seeing the crisis resolved. This explains why what was a Eurozone only meeting, planned for Wednesday, has now been extended to all EU leaders.

One thing that did emerge at the weekend (well, almost) is an agreement that banks will need to raise an additional €100 billion to provide a safety net against potential losses in heavily indebted countries. A caveat to this seems to be an implicit acceptance from the private sector of an up to 50% write-down on bad (Greek) sovereign debt, so it is far from certain that the measure will be approved. Another, potentially very significant development at the weekend was that EU leaders appear to be willing to alter terms of EU treaties in order to deal with the crisis, if required. Any such agreement would require unanimous support from EU member states. As they say “it ain’t over until the fat lady sings”, but perhaps, just perhaps; we can hear her doing some vocal exercises in the wings.

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