Banco Santander analysts today chose a discouraging headline for the Ecofin event hosted last week in Eastern European territory:
“Little progress in the Ecofin summit in Poland. It was not possible to release the next tranche of the loan to Greece, nor there was any progress regarding the EFSF, nor was the Finnish collateral difficulties unblocked. In fact, it seems that everything will be delayed until at least October.”
The list seemed almost depressing, in spite of some positive turns.
“In addition, Merkel lost again in Berlin in what was her sixth and final regional election this year. The euro-skeptic party FDP, on the other hand, achieved its worst results since World War II. Finally, the Irish finance minister returns to exhume the ghost of the bail-ins in Anglo Irish senior debt (€3bn).”
Two green shoots please Banco Santander the most, though. One is the increasing awareness about the real condition of the euro zone banks.
“Although we will need to wait for the new IMF figures (from the initially proposed €200bn), the Ecofin recognises the need to recapitalise the European banking system.”
The other call for optimism would be that the stress tests should fulfill some of the markets’ key demands and, thus, recoup credibility.
The informal meeting of European finance ministers over the weekend ended up, as mentioned, not making any progress or reaching any final conclusions regarding the sovereign debt crisis, although many proposals are on the table. Among them, to establish a stress testing of the financial sector that is more ‘consistent and rigorous,’ that is, one that considers a default scenario as Spanish Economy Minister Elena Salgado said, applying haircuts also to maturity and not just to trading portfolios, a factor that has been criticised in the market.”