Thursday, October 27, 2011
A Petit Grand Plan
Posted by David Smith at 09:30 AM
Category: Thoughts and responses

It wasn't quite the grand plan that was being talked about at the IMF meetings a few weeks ago, and the beefing up of the European Financial Stability Facility is about half what Timothy Geithner said was needed. But the market response to the overnight deal in Brussels was positive and the consensus among analysts is that it was enough to calm markets.

The three-point plan consisted of:

* A voluntary increase in the "haircut" on Greek debt to 50%, easing Greece's debt burden.

* An agreement to recapitalise EU banks by 106 billion euros, taking their Tier 1 capital ratios to 9%. Spanish banks will account for a quarter of this recapitalisation (26.2 billion), followed by Italian banks (14.8 billion).

* An increase in the firepower of the EFSF to 1 trillion euros (from 440 billion), which will include the possibility of a direct input from China. Nicolas Sarkozy is to seek Chinese assistance.

According to Societe Generale: To our minds, this is likely to prove sufficient to ease financial stress and give the euro area a “window of opportunity” to put its house in order." That looks about right.