Initial Deal in Europe

 | Dec 09, 2011 | 7:45 AM EST  | Comments
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Looks like it's D-Day for the EMU. The markets want a deal ASAP.

Just remember, this all started when Greece kept its real debt figures on the QT. Now the fate of the EU is at stake. We watched as PIG became PIGS and then PIIGS and sent economic shockwaves from the BRICs to the USA and caused a roller-coaster ride for EUR/USD.

What the VIPs in Brussels currently have is a fiscal compact (FC) with the following highlights (just FYI):

  • Annual structural deficit should not exceed 0.5% of GDP and automatic consequences coming PDQ for breach of deficit ceiling of 3% of GDP.
  • ESM in effect July 2012, EFSF keeps going until 2013, combined ESM/EFSF ceiling of  €500 billion.
  • Provision of  €200 billion for bailouts to the IMF.

Will it calm the situation like TARP?

During the negotiations, the UK refused to RSVP to the party, vetoing a change to the Lisbon treaty to protect the interest of all the banks in EC and E14 London. That leaves four holdouts, the HUSC of the EU (Hungary, the UK, Sweden and the Czech Republic).

So far, the markets seem general pleased, with the FTSE, CAC and DAX all higher midday.

But the EU has to please the ratings agencies, most notably S&P. If S&P doesn't like the deal, France's AAA could be MIA.

Not encouragingly, Moody's issued a warning Friday on possible downgrades of French banks like BNP.

If S&P wields its ICBM on sovereigns then the whole situation will be FUBAR. You'd be better off taking your cash to the OTB.

BTW, I haven't been this jittery since Y2K. Any suggestions on how to fix this, just CC me.

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