Tuesday, October 18, 2011

Countdown to Euroday Oct 23rd: Another wild day

by Calculated Risk on 10/18/2011 10:38:00 PM

Another wild day in Euroland ...

Early today, the Guardian reported: France and Germany ready to agree €2tn euro rescue fund

But later in the day, right before the close, Dow Jones reported: EU Source: No EFSF Deal Til Friday, EUR2 Trillion Number 'Simplistic'

European officials are still debating the size of the bailout fund for the euro zone and reports that an agreement has been reached to leverage it to EUR2 trillion are "totally wrong," an official familiar with the negotiations said.
There are discussions concern insuring debt so the EFSF would take the first losses. If the first 20% was insured, the €440 billion EFSF could insure close to €2tn in debt - except it isn't that simple. First, the EFSF only has about €300 that can be deployed, and second, the amount of insurance will vary by country. So the €2tn was "simplistic".

Also Moody's downgraded Spain. From Bloomberg: Spain’s Rating Cut to A1 by Moody’s
Moody’s yesterday reduced its ranking to its fifth-highest investment grade, cutting it by two levels to A1 from Aa2, with the outlook remaining negative. ... Moody’s, in a statement, cited the “continued vulnerability of Spain to market stress” that is driving up the cost of borrowing, as well as weaker growth prospects.
And from the NY Times: France Defends Its Credit Rating After Moody’s Warning
The discussions have taken on greater urgency since Moody’s warned late Monday of a possible downgrade to France’s flawless credit rating.
And from the Financial Times: French warning to euro summit
President Nicolas Sarkozy said that “an unprecedented financial crisis will lead us to take important, very important decisions in the coming days”.

Raising the sense of urgency, the French president added: “Allowing the destruction of the euro is to take the risk of the destruction of Europe. Those who destroy Europe and the euro will bear responsiblity for resurgence of conflict and division on our continent.”
excerpt with permission
The clock is ticking and the rumors are flying.