In line with what Merkel hinted at early and appropriately early for the US close, the FT has just put out a headline with regard to a new set of stress tests (yes those ever-so-trustworthy self-inspected exams) to better understand the impact of a larger than expected Greek haircut. This makes sense given the market trading massively below prior stress test or PSI levels but perhaps the craziest thing is what this is supposed to achieve - remember its not so much Greece per se as the message that a restructuring sends to any and all indebted European nation...cue EUR at week's high levels?
European Union finance ministers have asked the bloc’s leading bank regulator to test the strength of Europe’s banks on the assumption of a big writedown on Greek sovereign debt.
The move, a tacit admission that the European Banking Authority’s two previous rounds of bank stress tests were not sufficiently robust, came as Angela Merkel, the German chancellor, said she was prepared to recapitalise her country’s banks if necessary. She suggested she wanted to discuss joint EU-wide bank support efforts at an EU summit in two weeks.
“We’re under the pressure of time and I think we need to take a decision quickly,” Ms Merkel said after meetings with the European Commission in Brussels.
According to senior officials involved in the process, the EBA has been instructed to provide a country-by-country breakdown of how much new capital banks would need in the event that Greece’s bonds were written down.
And so on.
This time the Stress Test will work, and Spock will be found, damn it Jim!