The finance ministers and central bank governors that make up the G20 have told the eurozone’s policymakers that before the summit begins it should agree on a series of measures to essentially put up a firewall around Greece, confirm the extent of the losses the private sector will have to bear on Greek debt as well as a wider recapitalisation plan for Europe’s banks.
Angela Merkel, the German Chancellor, has already warned against such a package of measures being agreed and given Germany is (a) the one with the most to lose and (b) a member of the G20, it would seem that her views are fairly accurate.
One huge stumbling block is the disagreement between Merkel and her French counterpart, Nicolas Sarkosy, on the detail of bank recapitalisation as well as how the European Financial Stability Facility (EFSF) can be souped up closer to trillions of euros rather than multi-billions.
If at all, it is more likely that an agreement will come at the EU Summit in Cannes on 3 and 4 November but this puts the type of decision that markets feed off back yet another month.
The G20 is in the enviable position of being on the outside looking in and is therefore able to make grand statements about what the EU should or should not do. One issue, however, is that Germany and France, alongside the UK and Italy, are all members of the G20 – as is…the European Union.
Surely the leading European nations have had ample opportunity to not only assess the exposure they have to Greece – which seems to be the G20’s main concern – but also to other European sovereigns. And surely they have had more than enough opportunity to get together and discuss then agree a plan of action.
The likelihood is that the bond markets will suffer a more sever haircut than the 20%+ level already agreed (by France and Germany at least); it is also likely that banks will have to undergo an even greater stress test than before to allow agreement on any recapitalisation.
But unfortunately the likelihood of any decision-making will be delayed until at least November – though I fear the only decisive change between the two Summits will be a move from prevarication to procrastination.
