What to Look for Next Week in European Summits
Plus, bonus issues that need to be solved by early July.
MINYANVILLE ORIGINAL Here is a complete breakdown -- or as complete as I can compile -- of what you can expect from European leaders at next week's summit with, some knowns and unknowns:
Friday, within the space of a few hours, we had a number of headlines from European including:
- The European Central Bank ("ECB") eased collateral requirements on asset backed securities (subscription to Buzz & Banter required for link) in an attempt to allow banks to receive more lending from the ECB using less creditworthy collateral.
- Germany's Bundesbank (and pretty much the 800-pound gorilla of the ECB) criticized this plan and said they would not accept such collateral.
- Separately, French President Hollande and Italian PM Monti stated that they would unveil a 1% growth plan for Europe after their meeting in Rome. Their plan calls for as much as EU130 billion in stimulus.
- Spain, meanwhile, may officially ask for bank aid, in the amount of the previously discussed EU100 billion. Currently, Spain would receive this aid from the European System of Financial Support ("ESFS") because the European Stability Mechanism ("ESM") is not up and running.
- Spain's PM Rajoy refuted arguments that Spain would inflict losses on subordinate bank bondholders.
On June 28-29 we have the EU summit in Brussels. At the very least, the market is expecting the following:
- Officials should come out with a plan for a banking union of sorts.
- A euro-wide deposit guarantee scheme to stem the deposit flight we've seen from weak banks.
- The banking union to attempt to stimulate cross-border lending by banks (whether or not that works is still up for discussion, but the attempt would be viewed as positive for the market.
European leaders have been pushing for tighter eurowide regulation, especially Germany, whereas France and others are looking to shift the burden to the rich (witness Hollande's tax-the-rich scheme and transaction tax ideas). So the best we might see are some points being "met in the middle" by leaders at the summit.
And, in their voluminous free time over the two-day summit, participants have to squeeze in a few issues from the new government of Greece. From the Greek wish list expect to hear about:
- Renegotiating the conditions for the bailout package they received earlier this year.
- Abolishing the cuts to the minimum wage and pensions through 2014 while still keeping the asset sales in place.
- Recapitalizating of the Agricultural Bank of Greece. (So far, Germany has flat rejected this proposal.)
Despite what is accomplished at the jam-packed two-day summit, many of the same participants will be facing another issue as early as July: Whether or not to directly recapitalize banks using ESM. To my understanding, the EFSF would not be able to fulfill this role, and it was also said early this week that the European Investment Bank ("EIM") can't either.
A push to recapitalize would coincide with a push to make sure the ESM is ratified in early July. We will also likely hear talk of the European Financial Stability Facility buying bonds in the secondary market or even primary market (at auctions), per its mandate.
If they get it all done, they certainly could relax during their famous six-week summer vacations.
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