By David Liu,

Weekend Headlines
  • Merkel says no formal EU decisions expected today
  • All EU-27 to meet ahead of Wednesday, October 26 th Euro Summit
  • Finance Ministers agree largely on bank recapitalization, will meet again on October 26 th
  • Sarkozy says it’s vital for Germany and France to speak as one voice
  • Merkel says bank recapitalization alone won’t solve crisis
  • Leaders agree to change Lisbon Treaty if necessary to prevent deepening crisis

As European leaders approached their deadline set by the G20 last week to come up with a comprehensive plan to prevent contagion of the European sovereign debt crisis and to protect the European financial sector, no plan was announced over the weekend during the first part of the Euro Summit. With the second part of the summit planned for this coming Wednesday, European leaders have so far agreed on further bank recapitalization, intended to cushion the stressed financial system from heavy fallout due to a Greek haircut, and urged Italy to reduce its debt level while pointing that Ireland is on the road to exiting the crisis.

Despite no concrete plans being produced over the weekend, the newest development has been EU President Herman Van Rompuy’s statement that a “treaty change is not ‘taboo’” adding that EU-27 agreement is needed to change the Lisbon Treaty to help prevent further crisis. Currently, Article 125 of the treaty prevents the EU as a whole from taking on the liabilities and bailing out single states from financial distress. Because Article 21.1 of the ECB protocol prevents the central bank from directly buying debt from individual countries, leaders are targeting changes to the treaty itself to prevent further crisis rather than crossing lines with the independent central bank.

With no agreement set on the table and with Asia set to open in around four hours, the Euro and other risk sensitive pairs are set to gap lower once again. Although French President Sarkozy says the crisis summit talks “advanced on all subjects,” traders will be looking forward to the second part of the meeting on Wednesday while monitoring any possible developments during the week.

Pre-session trading changes . Data Bloomberg.
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Original Article: http://www.dailyfx.com/forex/market_alert/2011/10/23/EU_Summit_Reaches_No_Decision_Leaders_Mull_Treaty_Revision.html

DailyFX is the forex news and research arm of FXCM (NYSE: FXCM), which provides currency trading and brokerage services and is an advertiser on TheStreet websites. Any opinions, news, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice. Dailyfx will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. Currency trading involves significant risk of loss. Individual authors may hold positions in the currencies discussed in the article.