Euro Scream (after Munch)

A couple of interesting developments this weekend which could finally be the trigger for an all out shit storm in the markets as traders realise that all the promises and plans amount to the square root of bugger all.

Firstly, from Bloomberg, we have tiny Slovakia derailing the Eurpean Financial Stability Fund that was going to be the vehicle by which Greece is saved :

Slovakia’s ruling Freedom and Solidarity party won’t back the overhaul of the European bailout mechanism after Prime Minister Iveta Radicova rejected the party’s conditions for approval, a lawmaker said.

The party, known as SaS, insists its three coalition partners agree to two conditions before it will back the enhancement of the euro region’s bailout fund, the European Financial Stability Facility, in a parliamentary vote Oct. 11, said Jozef Kollar, head of SaS’s parliamentary caucus. “If the solutions we have put forward aren’t accepted then we will not vote for the EFSF,” Kollar said in a debate on state Slovak Radio today.

Slovakia and Malta are the only countries that haven’t yet ratified the key element in the European Union’s plan to prevent the region’s debt crisis from spreading. The Slovak row risks sinking the EU plan, which needs the unanimous consent of all 17 euro members to come into force.

Remember that this was the key agreement reached back in July and supposed to be in force from September. All market hopes have been resting on the ESFS being passed quickly to fill the blackhole that is Greek government finances.

Secondly, and possibly even more important, is the news from Reuters that the French and Belgian governments appear to have accepted the need to break up Dexia with the bank’s board meeting tomorrow to work out the details of the break up. A large bank such as Dexia being broken up will no doubt cause funding wobbles across the Euro banking system and may flush out the next weakest in the long line of buggered banks :

France and Belgium are expected to finalise plans this weekend to break up Dexia, which helps finance hundreds of towns in both countries and became the first European bank to fall victim to the euro zone crisis.

Dexia, whose board is likely to meet on Sunday, was forced to seek government help earlier this week after a liquidity crunch hobbled the lender and sent its shares into a tailspin.

The bank’s implosion has added to investors’ worries about the solidity of European banks and has coincided with increased European Union talk about coordinated action to recapitalise banks across the continent.

The burden of bailing out Dexia also prompted Moody’s to warn Belgium late on Friday that its credit rating could fall.

The ratings agency also cited the prospect of higher funding costs and weak economic growth as reasons for putting Belgium’s Aa1 government bond ratings on review for possible downgrade.

France and Belgium have guaranteed Dexia’s financing, paving the way for a new rescue for the bank, which is struggling to wind down billions of euros in toxic assets accumulated during an overambitious expansion plan.

But there were signs that the details of the rescue were proving troublesome, as a Dexia board meeting originally scheduled for Saturday slipped back to Sunday.

Still, a source close to the talks was confident the bank’s future would be determined before the opening of markets on Monday morning.

“The need to rescue Dexia is symbolic of the uncertainty that characterises the banking sector,” said Eric Galiegue, president of Valquant, an independent research firm. “Who would have imagined that a bank so linked with European construction would end up being dismantled?”

“Dexia’s funeral will be announced on Sunday,” the source said.

Interesting times …