The next several days will be a busy time for EU officials who plan to hold five meetings before Wednesday, October 26 in order to discuss the ways of dealing with the sovereign debt crisis in the Eurozone. But finding a definite solution to the euro area problems will be a strenuous task as the two largest EU economies, France and Germany, remain divided on such crucial issues as the strengthening of the EFSF.
Divergence also exists between the French and the European Commission's ideas of the EFSF operating principles. Earlier this week President Nicolas Sarkozy suggested that the EFSF should be turned into a bank which would have access to ECB's refinancing operations. EU Commissioner for Economic and Financial Affairs Olli Rehn said today that it could be problematic from the legal point of view. He admitted however that the fund needs strengthening.
This morning Angela Merkel spoke before her parliamentary group on the Greek haircut which she admitted will have to be larger than initially thought. She considers insufficient the 21% write-down on Greek debt which was agreed on in July and market rumors are that it will be raised to around 50%.
Paul Donovan from UBS considers the situation in the Eurozone grave, but he is skeptical about the EU leaders' ability to come up with a definite solution for it during the upcoming meetings: “There is little point speculating on the details of the next three summits. Euro 1 seems certain to disappoint. The Euro 2 outcome may or may not disappoint. The G20 will do nothing of note (that is what the G20 always does).” Donovan believes that in fact the troubles in which the EU is at present submerged are of the politicians' own making: “What is happening now is a visible manifestation of the complete failure of the Euro to work as a monetary union. The fault for this lies with politicians, not markets.”
European markets went through moderate advances on Friday's early trading on growing hopes on this weekend's Eurozone leader's meetings to reach an agreement towards a comprehensive plan to tackle the debt crisis which is threatening the region's banking sector. The Eurostoxx 50 Index rose 1.0%, while the German DAX Index added 0.6% and the French CAC index advanced 0.9%. In the UK, the FTSE Index traded 0.4% higher one hour after the opening bell.
