Forex News- EU Summit on Sunday lays ground for Wednesday’s meeting

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The EU Summit in Brussels over the weekend ended with only the broad outline of a new policy to deal with the regions’ debt crisis, with hopes of more progress and concrete plan by the next Summit on Wednesday.

On top of the agenda was the European rescue fund, known as the European Financial Stability Facility (EFSF). European leaders managed to at least outline some kind of strategy for leveraging the EFSF. This involved “haircuts”. There were plans for guarantees on first losses for the primary bond market and the creation of a special purpose vehicle for action in the secondary market. There was some disagreement on involving the ECB in leveraging the EFSF, but this sticky point was soon ironed out and agreed on instead allowing the ECB to continue to purchases bonds in the secondary market.

Also on the agenda was recapitalizing the region’s banks. However policy makers only agreed on just over EUR 100bn in bank recapitalization. Banks will reportedly have a period of several months to seek private financing to cover the shortfall, after which national governments and then the EFSF would step in.

Although Sunday’s Summit failed to deliver a comprehensive solution to the sovereign debt crisis, markets are pining hopes of more progress on Wednesday’s meeting.

Asian trading was a little subdued as investors were cautious, however, the Europe open saw EURUSD rise to a six-week high as sentiment was more optimistic on a solution by Wednesday.