Seven Important Topics For The EU Summit

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(EU) Market has been waiting for the European Leaders to solve the debt crisis and expectations are at all time high going into the EU Summit as Germany stated today that “[Germany] was willing to go far as needed to move towards fiscal union as the process is irreversible; Germany may be willing to move sooner than expected to accept shared liability of euro-zone debt and would support short-term measures to deal with the acute financing problems facing some of the region’s governments”…  Although the comment was taken out of context and Germany soon corrected it in a follow-up release that its position on the Eurobond is still the same (which is a big “no”), analysts now have hope that perhaps this EU Summit will be more fruitful than its predecessors…

Here are some important topics for this Summit:

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The short-term proposals are expected to fall under these five main topics:
  • Direct recapitalization of banks: using the eurozone’s rescue fund, the European Stability Mechanism to recapitalise Spanish banks, thus breaking the ‘sovereign banking’ loop.
  • Banking licence for ESM: would give the eurozone rescue fund access to European Central Bank funding, greatly increasing its firepower Seniority, and essentially ending the seniority of official loans to Spain over other creditors’ claims.
  • Bank supervision: Making the ECB the supervisor for systemically important banks.
  • Direct Bond-buying: Italy and Spain are desperate for eurozone intervention to reduce their sovereign borrowing costs, which are also hitting the real economy.
  • The Growth Pact: To boost growth by redirecting structural funds and issuing project bonds to finance infrastructure spending.

The long-term proposal are:

  • Banking Union: moves towards centralised supervision, a common resolution fund and a single eurozone bank deposit guarantee scheme, possibly with a taxpayer backstop.
  • Euro Bonds: helps to lower sovereign borrowing costs through common issuance of debt.

And of course, let’s not forget the Spain’s banking aid and the potential 3rd Greek Bailout as the new coalition government letter requested 2 years extension on jobless benefits, cancellation of tax hikes in restaurants, farms, and the 150K proposed government jobs cut.

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About Henry Liu

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