Donnerstag, 27. Oktober 2011

European deal risks on many unclear details

Whoever analyses the outcome the European summit, that terminated at 4:30 this night, struggles with a clear valuation.
Sure, all three chapters that had to be adressed, were adressed: orderly default of Greece, fresh capital for banks and the strengthening of the firepower of the EFRS. The problem is not even, that the expectations on the single dossiers were disappointed, no that's not the point, because a 50% headcut on Greece's debt, 108 Bill. of cap hike for the leading 70 European banks and the strengthening of the EFSF to 1 Trillion Euro are impressive figures. I hadn't anymore expected that, overall from the German side.
The issue is about lack of details and the unclear implementation. In management terms you call that execution risks.
While Greece is the most concrete dossier with remaining uncertainties about the concrete adherence of the bank, the capital strengthening plan seems more nebulous. While the target sum of 9% "highest quality capital" is clear, it remains open, which assets banks can count as capital in that definition. This question had to be answered upfront, in my view.
The most fuzzy thing is however the quadrupling of the EFSF. European leaders didn't even name the final sum because of the many uncertainties. Pundits calculate, that it should be roundabout 1 Trillion Euro, but nobody said that officially. And the mechanisms are vague (insurance solution with the participation of private investor, but how, who, what conditions?)
The impression remains, that the leaders had committed themselves in a political move to the bottomline. How this bottomline will work, has to defined later. This process is very top-down and it is well known, how many risks such a design runs.

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