Eurozone leaders are meeting this weekend trying to figure out how and what they can do about their financial crisis. On Friday, BMO Capital Markets chief economist Sherry Cooper sent around this note [pdf], summing up what, it seemed to me, was the consensus view on Bay Street about what the Europeans need to do (my emphasis):
There is no way this Sunday’s summit or the one after that will provide all that is needed to really deal with the European Debt Crisis. The true litmus test for credibility is a writedown of Greek debt of €200 billion, a recapitalization plan of €200 billion, and an increase in the effective capacity of the EFSF to €1 trillion. Anything short of this extends the crisis and suggests the Europeans still don’t get it or at least not enough to accept the real price tag of the mess they are in.
So far, not so good (at 7 pm GMT in any event): There has been squabbling between German Chancellor Angela Merkel and French President Nicolas Sarkozy. As for the benchmarks that Cooper (and others) set out, none have been reached. European finance ministers agreed to a recapitalization plan for the banks of just €100 billion – half what is needed to be seen as “credible”.
Meanwhile, an economist is quoted in the very last paragraph of a front page piece in the New York Times today which looks at the bailout of one Belgian bank, Dexia, and wonders if this is not simply nuts:
Walker F. Todd, a research fellow at the American Institute for Economic Research and a former official at the Federal Reserve Bank of Cleveland, said governments were setting a troubling precedent when they bailed out a company and paid its trading partners in full, as occurred with A.I.G. and as might occur with Dexia.
“In the short run, it would help if the authorities would say they refuse to provide publicly funded money for the payoffs of derivatives,” he said. “This is like using public funds to support your local casino. It is difficult to see how this is good for society in the long run.”