• 27 OCT 2011
By Jeremy Warner | The Telegraph
Will the grand plan cobbled together by eurozone leaders in the early hours of Thursday morning work in saving the euro? As Sir Mervyn King, Governor of the Bank of England, remarked before it had been signed, it might buy a little time, but it is no kind of long-term solution.
Before explaining why, let's first pick some holes in the plan itself, which amounts to pretty much a clean sweep for the German view on how to proceed and poses almost as many questions as it answers. The only bit which is done and dusted is the banking recapitalisations, where 70 banks have been stress tested and some very precise numbers have been put on the required additional capital.
The overall impact of the banking package is none the less somewhat underwhelming. The stress tests are widely thought wanting by many market participants and the additional capital therefore inadequate. BNP Paribas for one should be able to achieve its €2bn through earnings retention alone. The tests seem once again to have been designed so as to bring about the least possible commitment of new public money rather than once and for all to underpin banking solvency.
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