EU heads of state worked through marathon session Wednesday, and into early Thursday, in Europe to come up with plans to address problems revolving around crushing debts among several member nations. The first point agreed upon, as ratified by its 27 member state setup, was to force banks to set up higher capital ratios with the purpose of absorbing what are seen as unavoidable losses, notably from Greece, as nations’ debt problems continue to grow. Banks, which had been required to hold a capital ratio of 5%, must raise the ratios to 9% by June 2012. This is seen as a way to create a cushion, in excess of 100 billion euro, for upcoming losses.
Also, in the interest largely of protecting from still somewhat unlikely worst case scenarios in key economies Italy and Spain, the 17-member block of nations operating on the euro ratified plans to bolster the European Financial Stability Fund and pledged that it would be used for insurance and partial guarantees against losses going forward. The 17 members of the EU on the Euro also came to an agreement, likely through considerable strong-arming, with financial institutions to accept up to 50% losses on Greek bonds. The EU also plans to up the Greek bailout to upwards of 100 billion euro through 2014.
Though the plan may not be finalized until December and could yet face bumps along the way, surges and rallies in bond markets in several of the “PIIGS” nations, the U.S. stock market and oil prices were all experienced through the first few hours of business (EST) Thursday.
Brian Shappell, NACM staff writer