EU leaders met for the umpteenth summit. But, rather than proclaiming to have 'solved' the crisis through their 'collective wisdom' as in the past, they merely agreed to reconvene on Oct 26th. The outcome was largely in line with expectations following Germany's Merkel musings in the prior week that a second summit would likely be needed.
Germany scored a small victory by getting Sarkozy to admit his idea of giving the ESFS a banking license, allowing it to leverage itself via the ECB, was officially dead. The two other options to lever the ESFS remain:
a) inducing private sector participation by insuring the first 10%-20% of losses.
b) creating an SPV (special purpose vehicle) to purchase 'at risk' sovereign debt.
This was largely expected, as was the decision to recapitalize EU banks with EUR 100 bln (with details unspecified)
Given that excessive leverage, structured products and government meddling got them into this mess, it only makes sense that more of it will get them out...
The main new tid bits were:
a) Merkel and Sarkozy took Berlesconi to the woodshed over implementation of structural reforms.
b) Germany, Finland and the Netherlands had to be dragged kicking and screaming to approve another tranche of aid to Greece.
c) The IMF is considering not providing its portion of the next tranche of Greek aid.
d) A leaked secret plan to create an EU Treasury department (to the consternation of the British.
Given the low expectations going into the meeting, the lack of much headway resulted in the EUR opening a mere 40 pips below Friday's close.
After so many summit meetings it appears the European Elite have at least learned something: the art of "Managing Expectations."
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