The EU resorts to US bank earnings accounting

The banking shortfall in the EU is estimated to be between $100 bb Euros and over $1 trillion Euros. Why such a wide estimate? Because no one knows or has taken the time to understand exactly how much off the balance sheet exposure these banks have to each other and the failing EU countries. The market is expecting at least the pledged $110 billion Euros to have any sense of confidence in the banking sector, however the Troika's shocking report on Greece Friday showed that things are beyond any nightmare scenarios previously imagined. As one Finance Minister put it, Greece alone could swallow the entire EFSF in one gulp and there would be no money left for other countries or banks.

So the EU in a bid to manage expectations and hope the headline scanning algos don't go any deeper then headlines, have decided to count or double count all money lent so far to the PIIGS which has been pledged to recapitalize banks, taking the $110 bullion number down to about $60 billion.  Do they really think this will fly? The market expected new capital not already pledged capital.

It seems like the enormity of the task is finally sinking in and the bottom line is, there just isn't enough money.

First Read on the EU Summit

As posted last night, it didn't sound like the summit went all that well, apparently they got as far as to agree that EU banks need to be recapitalized, but there were no details. Tackling the issue of Greece seemed to be more of a finger pointing game then anything, although you can hardly blame them as the Troika's report on Greece, released on Friday showed a MUCH worse reality then anyone even dared to dream. Greece alone would eat up the entire EFSF without substantial leverage added, an idea that is up in the air.

So now the expectations are being shifted to Wednesday. I have been curious on the first read of the market's reaction and FX trade just opened, the last print I saw which was around 2 pm suggests the market is not happy, but the bottom hasn't dropped out, yet.

Here's a visual.

 The first red arrow is the NY close on Thursday, the green arrow is the NY open on Friday and the last red arrow is the NY close on Friday. The red line is where the Euro is at last check around 2 p.m.

 This roughly correlates with the bottom of Friday's range thus far. Of course these are only very early indications. I'll update as the situation changes.