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Sunday’s eagerly anticipated meeting of Euro Zone leaders has failed to deliver any concrete solution for solving the debt crisis. There has luckily been one unanimous agreement – that another meeting is required for this Wednesday.
Herman Van Rompuy, the president of the European Council, stated that by Wednesday evening a conclusive plan would be announced. The plan will announce the amount of private sector involvement in the Greek deal, detailed proposals for Bank recapitalisations, and the means by which the EFSF will be leveraged. It will also involve countries coming up with new credible measures for dealing with the debt crisis. Finally, and perhaps most importantly if true, there will be moves towards greater economic convergence.
Unfortunately, the private sector unsurprisingly appears resilient to accepting a hair cut above the 21% levels agreed in July – certainly nowhere near to the 50% being suggested within the Euro Zone and 60% by the IMF. Rumours this morning are circulating that Europe’s leaders are now threatening to implement a formal default unless the 50% hair cut is realised. An involuntary default would be treated as a credit event, triggering CDS payments as well as exposing the ECB to a write-down of its own holdings of Greek debt.
Germany and France still appear to be at logger heads on how best to leverage the EFSF. France would prefer to do this through the ECB, but Germany would prefer to guarantee a percentage of periphery debt. It appears that German plan is the one being supported by the majority of the Euro Zone,
Italy has been told to go away and come up with a credible plan for reducing its debt levels whilst encouraging growth – a task which is as impossible as it sounds. The one hope for the Italians may be that closer economic integration will be announced within the Euro Zone. However, any plan for closer economic integration would most likely require an altering of the original treaty and may take years to materialise.
But, we are told that in three days, all of these issues will be ironed out.
What does this all mean for me? Well buying your EUR, USD, AUD or any other currency at the wrong time could cost you a fortune. There is no crystal ball but Currency UK can give you the information you need to make an informed decision.