Photo: Courtesy ESO/Martin Kornmesser
From BTIG’s Dan Greenhaus, some general ideas ahead of tomorrow’ big summit:While earnings have proven to be an interesting and worthwhile distraction, attention focuses squarely on the Euroarea once again as tomorrow brings the all important “Latest Summit to Save the World.” While there is a fair bit of uncertainty as to what exactly will be announced (the WSJ is reporting tonight that debate still exists), we do have an idea of what might be announced:
- A haircut for Greek bondholders on the order of at least 40% if not 60% (this is still being fought forcefully by the banks)
- A bank recapitalization on the order of €100 billion using the remaining funds from the EFSF (about €300 billion)
- Some EFSF leveraging that will provide the fund with more “firepower”
The last point above apparently remains quite contentious as there is considerable debate as to how this leveraging will be achieved. Indeed, up until the last minute, some parties favour IMF involvement, others want to lure in BRIC nations while others remain focused on ECB participation. Further, the second point, if finalised, is likely to disappoint markets (the FT is currently running a story discussing this exact idea). There is quite a bit of dispersion between sovereign debt value estimates but marking down Italian and Spanish debt by say 10% or so is going to disappoint markets that seem to believe their “true” value is much less. The first point is equally contentious in that it signals, more or less, a Greek default.
Again, as we noted, at this point, if they conclude anything of substance, markets may be very shocked.
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