Photo: Wikimedia Commons
And this is the state of the world this morning.Ahead of the big EU Summit today, Italy is supposed to confirm new reform plans in a letter sent to Merkel, Sarkozy, and the ECB.
But according to headlines, the letter hasn’t been sent yet, and nobody knows when it’s coming!
So we wait.
Meanwhile, from Nomura, a taste fo what to expect:
We expect a headline heavy day with Europe driving market sentiment. Following the conflicting announcements yesterday, it appears that both the EU-27 (starts at 13:00 EST) and the EU-17 (starts at 14:30 EST) Heads of State meetings are going ahead today, even though a corresponding meeting of Finance Ministers has been deferred until afterwards. Markets will be looking for a broad outline on the plan for (i) the Greek PSI, (ii) bank recapitalisation and most importantly (iii) the leveraging for the EFSF. The small print is most likely to come later in the subsequent ECOFIN (the group of Finance Ministers) meetings. Latest reports suggest haircuts on Greek debt of 40-60% (according to the Greek newspaper Ekathimerini for every €100, investors will get €15 in cash and €35 in 30yr bonds with a 6% voucher) and bank recapitalisation of around €108bn. On leveraging the EFSF, we think markets expect a combination of the following (i) the use of EFSF funds to offer partial protection of the peripheral issues in the form of insurance certificates and (ii) the creation of a special purpose investment vehicle (SPIV) sponsored by private and public sector external funds (e.g. sovereign wealth funds) to support market purchases. However, each of these proposals has flaws, and while some agreement could trigger a relief rally, it is likely to be a short-lived one in our view.
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