Welcome to our continuing coverage of the eurozone crisis. Today’s summit in Brussels could, in years to come, be viewed as a turning point in the eurozone crisis. Or, it could be just one more extended meeting at which policymakers tried – and failed – to agree on a plan big enough to calm the storm in Europe’s sovereign debt markets. We’ll bring you news and commentary until the summit begins.
All times are London time. By Esther Bintliff and David Crouch on the world news desk in London, with contributions from FT correspondents around the world.
17.10: The summit is about to begin and we’re continuing in a fresh post: Eurozone crisis: the evening session.
16.45: A reminder of the timetable for tonight:
- 17.00 – 18.00 (London time): the leaders of all 27 EU member states meet
- 18:15 onwards: the summit of eurozone leaders begins
Statements and possibly a press conference are expected when the meetings close, but they will likely continue long into the night.
Stanley Pignal, Brussels correspondents, reports:
“EU leaders have been arriving for the first of tonight’s two meetings, which will involve all 27 member states before the eurozone-only leaders convene afterwards.
As tradition dictates, some heads of state have delivered doorstep soundbites tailored to their domestic press, though none have said anything wildly unexpected so far.
Angela Merkel, German chancellor, said: “We are all coming here with the aim of achieving great progress”.
David Cameron, British premier, told reporters: “We need to have the greatest possible support for the most comprehensive solution possible and that’s what we will be discussing tonight.”
Mark Rutte of the Netherlands stressed the importance of finding an accord to placate nervy markets.
French president Nicolas Sarkozy did not comment, and neither did European Commission president Jose Manuel Barroso.”
16.30: All the big names are arriving…
David Cameron arrives at the EU summit in Brussels. Photo: Francois Lenoir/Reuters
Angela Merkel arrives at EU headquarters in Brussels. Photo: Georges Gobet/AFP/Getty Images
Christine Lagarde, head of the International Monetary Fund, arrives. Photo: Georges Gobet/AFP/Getty
16.26: A quick update on events so far:
- The German parliament has approved expanding the firepower of the EFSF (the eurozone’s rescue fund) by a large majority
- German chancellor Angela Merkel called for Greece’s debt to be cut to a ceiling of 120 per cent of gross domestic product by 2020 - a target that would mean a substantially increased contribution from private creditors than the 21 per cent “haircut” originally proposed in July
- Italian prime minister Berlusconi reached a deal overnight with his coalition partners on the economic reforms demanded by EU leaders. A 15-page ‘letter of intent’ setting out Italy’s commitments has been sent to Brussels (with Mr Berlusconi not far behind)
- Jean-Claude Juncker, chairman of the eurogroup of finance ministers, said on his way into today’s summit that Europe is expecting “significant measures for structural reforms” from Mr Berlusconi, adding: “This is (Italy’s) duty.”
- The Institute of International Finance – the consortium of banks in talks with the EU – has put out a statement touting “a significant new offer” which managing director Charles Dallara made on behalf of private investors yesterday, but no further details were given on the actual offer
15.46: Members of the European Council have begun to arrive at the Justus Lipsius building in Brussels for their meeting. You can even watch them arrive live (go on, you know you want to):
15.32: Charles Robertson, chief economist at the Moscow-based Renaissance Capital, says a “German victory” is most likely at tonight’s summit, but forecasts trouble ahead if Ms Merkel is hoping to make “peripheral Europe more German-like”:
“Given the choice of dealing with European debt, via inflation, default or deleveraging, Germany has pushed hard for a Japanese-style deleveraging combined with German-style structural reforms. A 40-60 per cent default in Greece will presumably be eventually accepted, but northern Europe will still push for reform in Greece, Spain, Italy and Portugal that follows Germany’s own example of the 2000s, and the more recent Latvian and Irish examples of reform.
This effort to make peripheral Europe more German-like will prove very problematic… The Latvian internal devaluation model is tremendously misunderstood by those suggesting it as a template for southern Europe. Despite an 18 per cent GDP decline in 2009, and a massive jump in unemployment from 6 per cent in 2007 to 19 per cent in 2010, Latvia has cut its budget deficit from 8 per cent of GDP in 2009-2010 to an estimated 4.5 per cent in 2011. If Latvia could take this economic and fiscal pain, why can’t Greece? But what this misses is that while Latvian per capita GDP fell sharply, it had risen hugely in earlier years. If per capita GDP in cash terms was 100 in the year 2000, by 2007 it had risen to 324, and by the end of this year will still be around 304. And this with a currency that has basically been pegged to the euro since the 1990s. Latvians (with jobs) remain vastly better off than they have been within recent memory.”
15.21: Ralph Atkins, our Frankfurt bureau chief, has written on Money Supply about the messages on bond-buying coming from the European Central Bank – or rather, from its incoming president Mario Draghi:
“Mario Draghi has his own way of promoting central bank opaqueness: speaking in Italian. I suppose that’s allowed when in Rome – where he spoke this morning – but it does not help understanding of his thinking ahead of his move to Frankfurt next week to become European Central Bank president…”
15.00: What are analysts forecasting for today? The currency research team at Brown Brothers Harriman warned against overly high expectations in a note earlier this morning:
BBH: “At most, an agreement in principle and some broad understandings are the most that should be expected from the summit. Further development is likely ahead of the G20 summit on November 3. The general outline at this juncture is for EFSF to act as insurer for new Italian and Spanish issuance, around €100bn in European bank recapitalization by the middle of next year, and a special purpose vehicle set up that will hopefully see outside investors. The IMF may offer precautionary lines of credit to Italy and Spain. Deeper ‘voluntary’ haircuts toward 50 per cent or more on Greek exposure will be sought.”
14.43: More from Guy Dinmore, our Rome correspondent, on the letter that is keeping Europe on tenterhooks. Why’s it taking such a long time?
Silvio Berlusconi is on his way to Brussels, his last minutes in Rome spent on modifying the ‘letter of intent’ setting out Italy’s commitments on reform. Reports this morning that the 15-page document contained no legislative timetable for a long list of provisions sparked a chorus of concerns at the EU and prompted Mario Draghi, outgoing governor of the Bank of Italy, to insert some lines into his final speech this morning in which he called on the government to set out a concrete path.
Italian media are reporting that, as a result, the latest version, which has just been sent to Brussels, does now contains some dates and deadlines. A final communiqué is expected to bind Mr Berlusconi to his commitments.
Question now is whether he can deliver with a fractured coalition and a slim majority in parliament, not to mention the time he needs to devote to his several court cases and the fallout from his personal scandals.
14.38: Peter Spiegel, the FT’s Brussels bureau chief, reports on hints of a deal on a Greek debt exchange:
Is it possible that Greek bondholders and eurozone negotiators are getting close to a deal?
The Institute of International Finance, the consortium of banks in talks with the EU, just put out a statement touting “a significant new offer” they put on the table yesterday.
“I can confirm that a significant new offer was made by Mr. Charles Dallara, IIF Managing Director, on behalf of private investors in discussions yesterday. The offer was for a debt exchange on a voluntary basis in support of Greece. I am not able to elaborate at this point.”
14.31: Jean-Claude Juncker, the Luxembourg prime minister who chairs the group of eurozone finance ministers, seems to be setting the bar impossibly high:
“The whole direction has to be ultra-clear by tonight,” Juncker told reporters today in Brussels as he arrived for the meeting. “We’re getting close to the truth. We have to take sustainable decisions today.” [Bloomberg]
14.22: That Bundestag vote, courtesy of Quentin Peel:
The Bundestag voted by a big majority to give Ms Merkel backing to negotiate in Brussels, with 503 in favour, and 89 against, with four abstentions.
Only the far-left Linke party voted against as a whole, but the named vote – still to be released – will reveal how many rebels came from the chancellor’s own ranks. In September there were 13 government supporters who voted against, and two who abstained.
13.53: The vote has started in the Bundestag – it should take about 15 mins. Wrapping up the debate, CDU finance spokesman Klaus-Peter Flosbach appealed for a big majority to strengthen Merkel’s hand in Brussels – and promised “strict conditionality” on any German assistance to its eurozone neighbours.
13.47: It’s all kicking off in Rome. At least two deputies from the Northern League, a member of the ruling centre-right coalition, had a fist-fight with members from the opposition FLI party of speaker Gianfranco Fini, Reuters reports. Two deputies grabbed each other by the throat as other parliamentarians rushed to separate them, while parliament was temporarily suspended.
The trouble broke out because of sarcastic remarks on television by Fini alleging that the wife of League leader Umberto Bossi had retired at 39. Bossi has steadfastly refused to make more than slight concessions on changing Italy’s generous pension system as part of reforms demanded by European leaders.
13.37: How big will be the hit to bondholders agreed tonight? Does Angela Merkel already know? Quentin Peel comments on the chancellor’s speech this morning:
The clearest indication of a target for tonight’s summit came from Ms Merkel, when she called for Greece’s debt to be cut to a ceiling of 120 per cent of gross domestic product by 2020.
According to the troika report on debt sustainability, that would require a 50 per cent reduction in outstanding Greek debt – clearly the target of a compromise for eurozone negotiators in their talks with leading international banks. Hitherto the governments were looking for a 60 per cent cut in the face value of Greek debt, while the banks were talking about a 40 per cent cut in net present value.
13.20: As German parliamentarians debate the eurozone crisis, anti-bank demonstrators have gathered outside the Bundestag, unfurling a 15 metre-long banner calling for “die Banken in die Schranken”. Quentin Peel says this means, freely translated, “Cut the Banks down to Size“, with just a hint of “Stick the Bankers Behind Bars“.
Activists hold a giant banner in front of the Reichstag building hosting the Bundestag in Berlin. Photo: Stephanie Pilick/AFP/Getty Images
13.15: Angela Merkel is coming under fire in the Bundestag, says Quentin Peel, our Berlin bureau chief, as the chancellor’s opponents seize the opportunity to voice their anger ahead of a parliamentary vote on expanding the firepower of the eurozone rescue fund:
“One of the best speakers in the Bundestag is Gregor Gysi, leader of the far-left Linke party, and he never misses an opportunity to taunt his more worthy rivals in big debates with embarrassing insights.
‘Why don’t you tell the German taxpayers the truth?’ he demanded of Ms Merkel. ‘They are being asked to pay for the losses of the French banks’. The chancellor looked pained and irritated.
13.05: In case you want to know the timetable for tonight’s summit, it’s here. Ominous small print: “The programme may be modified in light of progress of the meeting.”
12.55: We now know why EU officials in Brussels have not yet seen Mr Berlusconi’s 15-page ‘letter of intent’, setting out his deficit-cutting measures and plans for structural reform.
It is still being written.
This from Guy Dinmore, our Rome correspondent:
“Gianni Letta, cabinet under-secretary and Mr Berlusconi’s right-hand man, excused himself from a conference in Rome this morning saying he had to deal with the document which still needs some ‘touching up’.
This suggests that differences within the ruling coalition are still holding up some important points, possibly on the thorny issue of pension reforms. The media is widely reporting that the document crucially lacks a timetable for implementing growth-promoting reforms which the ECB requested on August 5 be put into legislation by September 30. Time is slipping.”
12.50: Back in Berlin, Quentin Peel has been following the debate in the German parliament after Angela Merkel’s speech to parliament:
“Frank-Walter Steinmeier, parliamentary leader of the SPD, said he wished he had heard the sort of words Ms Merkel had used more than a year ago. She was guilty of encouraging German resistance to bailing out its eurozone partners. ‘You aroused those feelings which you are now having to fight,’ he said.
He said that Greece simply could not save itself without outside help, while Italy, with a far larger economy, had been ‘leaderless for many months’ – a very public criticism of the government of Silvio Berlusconi.
But he promised that his party would support the cross-party resolution, which gives a green light to using the resources of the EFSF ‘as efficiently as possible’ in order to support the stability of the eurozone.”
12.30: BREAKING: Peter Spiegel, Brussels bureau chief, has obtained a copy of a draft statement from the meeting of EU heads of government this afternoon:
“Although the draft of tonight’s eurozone summit is still under lock and key, the FT has obtained a copy of a draft statement for the first part of tonight’s festivities – the meeting of all 27 EU heads of government, which is expected to take no more than about an hour and a half before the 10 non-euro prime ministers depart.
The draft statement includes an annex headed “consensus on banking package”, but at this point it only contains broad outlines of what the plan contains – and most of that has been reported in the press already.
On the level of capital needed, they have agreed on the 9 per cent of tier-one capital threshold by mid-2012. Here’s the exact wording:
‘There is broad agreement on requiring a significantly higher capital ratio of 9 per cent of the highest quality capital and after accounting for market valuation of sovereign debt exposures, both as of 30 September 2011, to create a temporary buffer. This quantitative capital target will have to be attained by 30 June 2012, based on plans agreed with national supervisors and coordinated by EBA. This prudent valuation would not affect the relevant financial reporting rules. National supervisory authorities, under the auspices of the EBA, must ensure that banks’ plans to strengthen capital do not lead to excessive deleveraging, including maintaining the credit flow to the real economy or undue pressure on sovereign debt markets.’
The statement is even more vague on how banks will be recapitalised – though it does say that banks should be limited in paying out dividends and bonuses until they meet the new capital thresholds:
“Banks should first use private sources of capital, including through restructuring and conversion of debt to equity instruments. Banks should be subject to constraints regarding the distribution of dividends and bonus payments until the target has been attained. If necessary, national governments should provide support, and if this support is not available, recapitalisation should be funded via a loan from the EFSF in the case of eurozone countries.”
12.15: The latest from Quentin Peel, our Berlin bureau chief, who has been following Angela Merkel’s speech in the Bundestag:
“The chancellor said that Greece must have a permanent economic and budgetary surveillance by the ‘troika’ of institutions, rather than simply visits every three months, to ensure there was no slippage in the austerity programme, and a prospect of returning to growth.
‘Debt relief alone will not solve the problems for Greece,’ she said. ‘Structural reforms must be carried out consistently. We can only provide help if the country receiving lives up to its own responsibilities.’
In order to prevent contagion, she said, the European Union needs to recapitalise its banks and build a proper firewall. Recapitalisation would be done on the basis of the recommendations of the European Banking Authority. Banks in the first place should seek to increase their core capital privately, and secondly from their national governments. Only if neither were able to raise the necessary money would European resources – the EFSF – be used.
The key issue for the Bundestag, however, is the question of ‘leveraging’ the resources of the EFSF to enable it to intervene more widely if contagion affects much bigger economies such as Italy and Greece.
The measures being proposed – and the parliament has been given the two models under discussion, without final details – presented Germany with an ‘acceptable’ risk, Ms Merkel said. The German guarantee would not exceed €211bn.
She stressed repeatedly the need for new rules to enforce budgetary discipline in the eurozone, and called for EU treaty changes to incorporate the stability and growth pact more forcefully into fundamental European legislation. That was essential to make the EU a ‘stability union’, she said. ‘We cannot allow joint agreements such as the stability and growth pact to be ignored,’ she said. Greece had done so, but it was ‘not the biggest’member state to do so. ‘We cannot allow individual countries to endanger the stability of the rest.’
She finished by repeating her constant refrain: ‘If the euro fails, Europe will fail… And that must not happen.’ Germany had a historic duty to defend the achievements of the past 50 years, and ‘that is my deepest conviction’. She said the Bundestag decision was a message to the whole world that the country was ready to live up to its responsibility.”
12.00: Officials involved in tonight’s talks are preparing for the worst, says Stanley Pignal, Brussels correspondent, who is tweeting from our @ftbrusselsblog account:
11.55: As European leaders prepare to sign-off on a plan for recapitalisation of the banks tonight, Hugh Carnegy, our Paris bureau chief, reports that there is more insistence from France that its banks (under scrutiny for months over their exposure to vulnerable eurozone sovereign debt) are solid and will be able to bolster their capital without recourse to public funds:
“Frédéric Oudéa, boss of Société Générale and head of the French banking federation, told Europe1 radio this morning that any necessary capital top up would be ‘completely manageable thanks to our results’. Both the prime minister, François Fillon, and the head of the Bank of France, Christian Noyer, have said this week that the French banks will collectively need about €10bn to meet the capital targets set to be announced tonight.
Mr Oudéa said retained profits would be the first way to achieve this. ‘If we ever need it, which I doubt, we can appeal to our shareholders. In any case, we are not asking for public money.’
France also faces the tricky problem of cutting its growth forecast for 2012. The current budget going through the National Assembly is based on a growth estimate of 1.75 per cent of GDP next year, which the government has acknowledged will have to be reduced, probably in line with an adjusted forecast of 1 per cent growth for Germany. This will mean another round of austerity measures, to the tune of about €5bn on top of supplementary measures worth €12bn announced in August, in order to stick to the core target of reducing the budget deficit to 3 per cent of GDP in 2013. That is a key commitment in terms of France preserving its triple A sovereign debt rating.
Valérie Pécresse, the budget minister, said after today’s cabinet meeting: ‘We want to have a clearer, more stable view of the eurozone before looking at our growth outlook again. We’ll also look at the economic indicators that will be published in coming days.’”
11.44: Angela Merkel in the German parliament this morning:
Angela Merkel in the Bundestag on Wednesday 26 October. Photo: Odd Andersen/AFP/Getty Images
And the latest on her speech from Quentin Peel, our Berlin bureau chief (our emphasis):
“Ms Merkel said Germany had recovered well from the financial crisis of 2008-9, with significant economic growth and the lowest unemployment in 20 years.
But she warned: ‘It is also clear that things cannot go well for Germany in the long term if they are not going well for Europe. That means no more and no less than the European Union becoming a real stability union.’
The eurozone was facing the greatest test of its existence, she said, and it was essential to ensure that the debt crisis in Greece did not cause contagion to other eurozone countries.
The heads of government had made good progress in agreeing on a comprehensive package of crisis measures on Sunday, Ms Merkel said, and she was confident they would reach clear decisions tonight.
She said the latest report of the International Monetary Fund, European Commission and European Central Bank on Greece gave a realistic assessment of its debt sustainability, and showed that private creditors must make a bigger contribution to debt relief.
But she added that if they did so, they must also be convinced that the eurozone governments were taking action to ensure there was an adequate firewall to prevent contagion to other countries.”
11.30: Our Rome correspondent Guy Dinmore says that Mario Draghi, the incoming president of the European Central Bank, has made some “relatively encouraging” noises about the compromise plan for economic reform drawn up by Berlusconi and his partners last night:
“Mr Draghi called the government’s letter of intent ‘an important step, containing an organic plan of reforms for economic development’. In a major speech to banks in Rome, he added that now the plan had to be carried out ‘quickly and concretely’. He said the plan contained bold measures and for that reason the weaker elements of society should be protected.”
However, in Brussels, officials have yet to get a glimpse of the strategy, reports Peter Spiegel:
“Mr Berlusconi has touted a 15-page letter he is sending to Brussels detailing the economic reforms he will implement. One problem: EU officials say they still haven’t received it. Olivier Bailly, a spokesman for the European Commission, told his usual mid-day briefing that he had checked just before the news conference and it hadn’t arrived. ‘At this point in time… we have not received officially the letter but we will receive it from the Italian authorities by the end of the day,’ Bailly said. The Commission is maintaining it’s hard line towards Rome: ‘We need a list from them with clear timing,’ Mr Bailly added.”
11.25: Angela Merkel is on her feet and has begun speaking to the German parliament, says Quentin Peel, our Berlin bureau chief.
Earlier, bells rang to summon the members of the Bundestag to the chamber, Quentin reports:
“There is not the same sense of tension that Ms Merkel might lose her ‘own majority’ in the parliament, and be forced to rely on the opposition for a majority, as there was in September when they first voted on extending the powers of the EFSF. But she is unlikely to win the 311 votes from her own side which would be an absolute ‘chancellor’s majority’ in the 620-strong chamber: too many members are absent to make up the number.
Joachim Poss, deputy leader of the SPD, said a big cross-party majority would give a good signal to the financial markets of Germany’s determination to tackle the eurozone crisis. But he admitted that the vote has no legally binding status: it would be an ‘important political signal before an important summit’, he said before the debate began.
One word from German business before the chancellor started speaking. Anton Boerner, president of the German export federation, called on the parliamentarians to “do their duty to prevent damage to Germany” from the crisis. ‘Today they must vote with the government, because otherwise there could be chaos and a global depression,’ he told the German news agency, DPA.”
11.18: Italy’s prime minister Silvio Berlusconi has managed to squeeze an agreement out of his coalition partners on the economic reforms demanded by Europe’s leaders, says Guy Dinmore, our Rome correspondent, but will it be enough?
“Silvio Berlusconi has salvaged a compromise agreement on economic reforms with his coalition partners that commentators said lacks specifics and risks falling short of what eurozone leaders have demanded ahead of today’s summit in Brussels.
Italy’s plan of action on structural reforms and a recap of budget measures taken so far are said by officials to be contained in a 15-page document that the Italian prime minister will present at the summit this evening.”
Full story on ft.com soon.
11.10: The chief executive of Intesa Sanpaolo, Italy’s biggest retail bank, has told reporters he is disappointed by the agreement reached by the government in late night talks ahead of today’s EU summit, reports Reuters.
“In the situation we are in, I expected an economic programme that would be agreed by everyone and not just unconfirmed suggestions to take to Europe. I am disappointed,” Corrado Passera said at the margins of a conference.
10.45: Angela Merkel, the German chancellor, will be on her feet in the Bundestag at 12 o’clock Berlin time (11am UK time) to defend her plans for beefing up the eurozone’s €440bn rescue fund, and recapitalising Europe’s banks. Her speech will be followed by a debate, and then a vote. Quentin Peel, our Berlin bureau chief, explains all:
“Thanks to the support of the opposition, Ms Merkel looks set to win a big majority in the parliament, but she will still face defections from the ranks of her own supporters from rebels who are deeply unhappy about German taxpayers having to provide financial guarantees for its debt-laden eurozone partners.
The government and opposition – except for the far-left Linke party – have agreed on a joint resolution which will be passed with a thumping majority. But the parliamentarians are still going to get their own say before giving the chancellor a green light to negotiate at tonight’s EU and eurozone summits in Brussels.
The opposition Social Democratic party has got four points added to the resolution, including insisting once more that a financial transaction tax is introduced in the EU. They also want a clear statement that the European Central Bank should not continue to buy sovereign bonds in the open market.
The parliamentarians are also going to call for “systemically relevant” big banks (those referred to as “too big to fail”) to pay for their own recapitalisation, and not rely on the taxpayer to bail them out.
The SDP has also managed to insert a sentence in the motion to score a political point over the government. It underlines that “leveraging” the €440bn European Financial Stability Facility by using its cash to insure bond-buyers against future losses will make it more likely that the guarantors will have to pay up in the end.
Germany provides the biggest guarantee for the EFSF – of €211bn – and the government insists that is the absolute maximum it will provide.
When the crisis measures were debated in the different party groups yesterday, there were seven No votes and three abstentions in a “test vote” in Ms Merkel’s own Christian Democratic Union, and four No votes with two abstentions in the liberal Free Democratic party group – a total of 16 government supporters prepared to rebel.”
10.35: Are Europe’s leaders anything like the A-Team? Divyang Shah at IFR Markets posits this theory in his latest note ahead of today’s summit, and he’s cast the ECB and the IMF in the role of Mr T (B.A.Baracus). Intriguing.
“‘I love it when a plan comes together’ was John “Hannibal” Smith’s favourite catchphrase if I remember correctly from my childhood days. The EU summit is a bit like the “A-Team” with Hannibal (Germany), Murdock (France), Face (Italy) and Mr T (ECB/IMF) all looking to put together a comprehensive solution to the crisis. The problem is the perception that the measures on the table will simply buy some more time with the range being 1-3 months (Soros) or 1-2 years (Bank of England’s King).
Mr T (ECB/IMF) with his firepower would be the most useful and while the ECB is not involved the fact that the IMF (backed by SWF/CB) is on the table is a positive as it provides comfort that the eurozone has another avenue to access funding and leverage the EFSF…
We have the Hannibal (Germany) and Murdock (France) angle whereby Hannibal gets his way with the ‘plan’ while Murdock’s ideas tend to get shot down. We had this with the 60 per cent haircut for Greek debt, no involvement of ECB in EFSF leveraging and bank recapitalizations to happen at national level where Germany got its way. The problem is that sometimes Murdock can be correct and this time round, France worries about the impact on its AAA rating. This could turn out to be the weak link in the plan.”
10.26: Market update from Michael Hunter in London:
Yields on six-month Italian bonds have hit their highest level in three years at 3.5 per cent, as investors continue to demand more of a premium to hold Rome’s debt.
10.18: An update from Peter Spiegel, Brussels bureau chief:
“The security surrounding the summit conclusions hasn’t gotten any looser this morning. A diplomat from a non-euro country said they never got a copy of the conclusions last night, but have been promised a draft this morning — hand delivered in a sealed envelope to the country’s EU ambassador. We’ll keep hunting!
10.14: Stanley Pignal, Brussels correspondent, has written a comprehensive analysis in today’s FT on the collapse of Dexia, the Franco-Belgian bank, and its broader implications for the eurozone. It’s well worth a read:
“What happened to Dexia – its inability to raise liquidity because of its exposure to increasingly distressed eurozone sovereign bonds – is now gripping larger, more systemically important banks across Europe. The fear that Dexia is simply the canary in the coalmine – the sickest but not the only unhealthy bank trapped by a slow-moving credit squeeze – has been the biggest motivator pushing European Union leaders finally to attempt a system-wide rescue for their banks and bigger sovereign bond markets. That is the goal they hope to reach at today’s summit in Brussels.
10.00: Mario Draghi, who becomes president of the European Central bank on November 1st, will have to hit the ground running. We all know how stressful a new job can be… To help Mr Draghi on his way, Martin Wolf, the FT’s chief economics commentator, has written him a letter.
Dear Mario,
Congratulations and commiserations: next week, you will take up one of the most important central banking jobs in the world; but you will also bear a frightful responsibility. The European Central Bank alone has the power to quell the eurozone crisis. You must choose between two paths: the orthodox one leads towards failure; the unorthodox one should lead towards success...
09.30: In London, equity markets are largely in stasis, says Michael Hunter, as traders’ increasingly nervous watch on the long-awaited summit of eurozone leaders enters its final phase. The FTSE 100 inched 0.2 per cent higher to 5,536.21, a rise of 8 points coming after a 22 point fall over the previous session.
Manoj Ladwa, senior trader at ETX Capital, describes the atmosphere as “jittery” and volumes “stunted”:
“The recapitalisation of European banks and a 50% haircut on Greek debt seems to be on the cards and could be just enough to ease investor concerns. But the market will also look for measures to ringfence Italy and Spain from any contagion effect. If deemed inadequate, we could see a return to the volatility of three months ago.”
09.24: Here’s Peter Spiegel, our Brussels bureau chief, on the secrecy surrounding today’s meeting as policymakers try to stifle any leaks that could spook the markets:
Just how market sensitive is the deal being struck at tonight’s summit? Consider the fact that by the morning of most European Union summits, drafts of the leaders’ communiqué have already begun to leak, as officials in national capitals weigh in on changes.
But organisers of tonight’s summit have taken extra precautions. According to several diplomats, the most recent draft of the conclusions distributed last night was sent around with numbered copies so that any leak can be traced back to the country of origin. Although the FT has been told much of the contents of the current draft, and we reported it in this morning’s paper, hard copies are in short supply.
For those following the debate closely, the most recent draft to be more widely circulated was put together a week ago when it appeared that final decisions were going to be taken on Sunday.
It should be noted that sherpas for all 17 eurozone leaders met last night in Brussels, so it’s likely that the draft that made the rounds yesterday evening has already been changed.
08.30: Almost two years since Europe’s sovereign debt troubles began, will today bring the much-anticipated “comprehensive” plan to stem the crisis? The latest reports suggest not. European officials last night described mounting concerns that today’s Brussels summit would fall short of market expectations, with a lack of a consensus on several key areas. But last-minute agreements could still be made in the hours before the summit begins this afternoon. So far today:
- Italian daily La Repubblica reports that Silvio Berlusconi has agreed to step down in January and bring elections forward to 2012 (the FT has not independently verified this report yet but we’re looking into it). Mr Berlusconi is said to have reached the deal with his Northern League coalition partners overnight in exchange for economic reforms, particularly on pensions.
- A German parliamentary vote is due to take place on expanding the firepower of the EFSF. But it will be preceded by a speech by chancellor Angela Merkel – scheduled to begin at 12 midday Berlin-time, or 11am London time – and a 2-hour debate.
- In global markets, trading is mixed and wary as investors wait to see what proposals for containing the eurozone sovereign debt crisis the European Union’s summit can deliver. Jamie Chisholm, the FT’s global markets commentator, reports that the FTSE All-World equity index is little changed, with major currency crosses stable – the euro is up 0.1 per cent at $1.3916 and the dollar index fractionally lower.
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