WHAT TO EXPECT FROM THE 23 OCTOBER BRUSSELS SUMMIT?

Investors are hoping for something big from European leaders at the EU Summit on 23 October and the Group of 20 on 3 November. Here below are some of the measures that most likely will be revealed in order to avoid the sovereign debt problems dragging the world into recession.

• European leaders will agree on new measures to combat market uncertainty, including a 9 percent Tier-1 capital ratio for 91 banks that underwent stress tests in July. This summer's stress tests of European banks set the threshold at 5 percent. Those with inadequate capital will need to raise it from private sources or the government. 
• Recapitalization of systemically relevant European banks
• Reduction of Greece's debt. Banks will be asked to accept bigger losses including a 30% to 50% writedown in Greek private sector debt
• Leveraging the eurozone bailout fund to give it more firepower. Under the scheme, the European Financial Stability Facility (EFSF) would promise investors who buy Spanish, Italian, or other higher-risk eurozone sovereign debt at auction that it would cover a portion of any losses they made if the country were to default. By guaranteeing the first 20 percent to 30 percent of any losses, the EFSF could stretch three to five times further. With about € 300 billion of its € 440 billion capacity still deployable, the fund could be expanded to more than € 1 trillion, enough to support the refinancing needs of Spain and Italy, for at least the next year or longer. The EFSF is more likely to be given flexibility to decide how much its is leveraged on a case-by-case basis, depending on which country's debt is being guaranteed and the prevailing market conditions.

Other key topics that will be discussed on 3 November in Cannes will most likely include:

- Clear and concrete deficit and debt reduction plans, as the G20 leaders promised at their June 2010 summit in Toronto;

- Meaningful action from some large export surplus countries — such as China — to adopt more flexible exchange rates;

- Structural reforms to boost economic growth;

- Implementation of financial-sector reform agreed to in previous summits;

- A commitment to resist trade protectionist measures