Euro Debt Package Starting To Take Shape

Eurozone
leaders once again put off decisive action to the region dent problems leaving
the markets to trade and rumours and comments. The crisis, which threatens to
throw the world into a new recession, has been the only subject of note for
traders and investors as the markets remain volatile, but over a small range.
The summit, between 17 euro nations, led to the agreement that the bailout fund
would be leveraged up to €1 trillion, half the €2 trillion the markets have
been looking for. This agreement is only in words though and no official number
or method for achieving it has been announced. The disagreements to derive over
exactly how these funds will be raised and also the size of the haircut that
banks and institutions will have to take on any Greek bonds they own. The IMF
was said to favour a 70% cut while the owners of the bonds are struggling to
get above 40%.

Further
chaos added came from Italy
where politicians came to blows as they discussed austerity cuts for the
country. Rumours that Prime Minster Silvio Berlusconi will resign by the end of
the year added fuel to the fire and the worries that Italy
could be heading the way of Greece
has grown severely over the last few weeks. French President Nicolas Sarkozy
and German Chancellor Angela Merkel have been meeting with banks in order to
thrash out details of haircuts and asking the banks to raise funds. France’s 4
largest banks are expected to raise €8.8bn with 13 German banks bring €5.2bn.
Also, Spain’s
5 largest banks will raise €26bn leaving 5 Italian lenders needing to produce
€14.7bn. This plus other banks across the Eurozone will raise a total of
€106bn, with Britain’s
lenders not raising anything to the total. This capital will be used as
reserves to cover the losses from any write-downs on sovereign debt held with
each institution.

Until
these agreements are signed, sealed and delivered with the fine print read
through, we are no closer to being out of the woods to last week.

Report
by Tim Lewis