Although Eurozone officials have repeatedly warned over the last 72 hours that the weekend is unlikely to deliver a cure-all for the sovereign crisis, there is a heightened sense of urgency after emergency talks yesterday between French President Sarkozy, German Chancellor Merkel and the heads of the IMF and ECB. In particular, the Financial Times reported that the size of the European bank recapitalization plan is likely to be only EUR70-90 bn or less, and that banks would be given up to 9 months to raise the capital. We note that this would likely disappoint market expectations, being too small in scale and too slow in delivery. France is of particular interest in this respect due to its higher banking risks, and multiple news reports suggest that yesterday’s emergency talks were aimed, in part at determining how France would be able to retain its AAA rating. German Finance Minister Schaeuble, according to Handelsblatt, also said that he is no longer ruling out a Greek default, though Greece itself continues to deny that this is on the cards. Continue reading →