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Foreign Exchange

FX comment: CEBS stress tests have no punchline

Those jolly people in European supervision must have a great sense of humour. With all eyes on the results of its stress tests, the Committee of European Banking Supervisors (CEBS) has decided to release the report on Friday at 5pm London time. How we laugh. Still, it will give some purpose to the New York afternoon for once. If you haven’t got anything better to do, the report will be published on the CEBS website.

On Wednesday Christian Blaabjerg, Saxo Bank’s chief equity strategist, punctured any hopes I had of the tests being comprehensive and exhaustive. He believes they will not be stressful enough because they “will likely only stress sovereign debt to a minor degree. That is to say that the eurozone is conducting a range of tests that downplay exactly the scenario that has spooked the market the most in 2010. In order to provide a trustworthier stress test, a test of a full-blown default by a eurozone member state would be necessary, but most banks within the Piigs [Portugal, Ireland, Italy, Greece and Spain] and banks in France and Germany as well would be hit very hard from this. So the stress test will most likely downplay this scenario, but making it vulnerable for harsh criticism.”

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