This weekend will see Germany and France meet to discuss the size and scope of the European Financial Stability Fund - a huge fund designed to be strong enough to cushion the impact of a major bank collapse or sovereign debt default. It's already off to a rocky start following an announcement yesterday that no decisions will be made until Wednesday next week - originally the meeting was only set down for this weekend.
The main hurdle for Germany to overcome will be convincing France it should issue debt with Germany to troubled euro nations. That is, debt backed by both countries. Moody's has already warned France its books need to shape up, and this move could further hurt their credit rating.
Without a robust bailout fund, however, markets will continue to trade within wide ranges in volatile trade. It's hurting investors. Even balanced super funds, of which around 75 per cent of Australians have some attachment to, are still down around 10 per cent from their peaks prior to the global financial crisis.
Markets will wait anxiously to see whether the German and French leaders can come up with a credible plan of attack. Some sort of concrete statement should come our way by Thursday this week. After that, we look forward to the G20 meeting on November 3.
We're a long way from where we used to be. Now, leaders recognise there's a problem and they're working hard to solve the problem. The only issue is that the problems are not straight forward and will require once financially strong nations to take a hit for the sake of the wider euro zone.
It's a bit like someone giving up a perfectly good kidney, to extend the life of neighbour who has been abusing their own for quite some time. It's a tough call.
David Taylor
