Between now and the 23rd – the Sunday of the European summit – the trading days will be volatile: the race against time sees a serious disagreement between France and Germany on ways to increase the firepower of the EFSF: the solution advocated by France – providing the EFSF with a banking license and thus allowing it to drink from an inexhaustible source of liquidity – the ECB – is opposed by the Germans and by the ECB itself.
The other node of the dispute is the question of the recapitalization of European banks, for which the amount under discussion – approximately 80 billion euro – is deemed insufficient by the market. The results of the latest stress test are also questioned: the valuation of assets at market values leads to losses on many sovereign bonds but gains on others (particularly German ones), and it is these gains that are being questioned by the hawks', who would not admit them.
European issues? What do they have to do with the Asian stock exchanges that are closing poorly today? Unfortunately they have something to do with it, because an unresolved crisis in Europe would precipitate a new recession, and not just in Europe.
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