It is more a positive rather than negative event, although it is by no means comprehensive or complete. It does provide a sense of financial market’s relief in that the rather modest expectations were not disappointed when Eurozone leaders entered into a long evening of negotiations in Brussels. However, it is widely recognized that the process still ahead will be a long one with many potential false steps. Failure though would have been most dangerous at the outset and damaging to the credibility of the Euro. What was largely resolved last night/early this morning (October 27, 2011) is:  Establishment of at least a trillion Euro valued “bailout” fund, EFSF, (already on table for several weeks in broader outlines), to secure Eurozone sovereign debt and/or provide holders of such debt with liquidity and perhaps capital cushion. Most other details remain not yet resolved including whether the EFSF (European Financial Stability Fund) will function as insurance protection, lender or some combination. (Initial methodology of top 20% loss insurance coverage appears favored).Beyond Germany’s further commitment, the IMF and perhaps other states outside the Eurozone will be asked to support/fund the EFSF.  A 50% “haircut” to the value of Greek debt held by European banks/financial institutions. This amounts to a default but allows for an orderly unraveling and a predictable situation minimizing risk of contagion. Also, such banks would presumably have access to the EFSF to address the hit against balance sheets/capital adequacy of such haircut.  Greek banks will face greatest balance sheet challenge, and most are likely to be nationalized.  Greece will gain further access to 150 billion Euros in additional funding in exchange for further relatively modest asset privatizations/austerity.  It is projected that by 2020 Greece will then have reached a 120% debt to GDP level and will be able to resume access to debt markets.  A broad promise was made by all members to explore further treaty changes to strengthen the Eurozone and presumably and most critically address structural deficiencies. Contagion & Meeting Modest Expectations: Behind all the numbers, specific commitments and broad promises regarding the future, the most comforting element of the resolution for the capital markets is that Greece default will be orderly, predictable and contagion is likely avoided for the moment.European banks are also being moved toward recapitalization, although again critical details remain to be addressed. Maybe even more importantly, Eurozone leaders for the first time delivered something concrete, and not just statements and promises, even if the expectations had been significantly reduced. Greece Still Has Much to Muddle Through: Besides delivering on its current commitments, Greece faces ongoing political uncertainty. Most critically, as we have always questioned, will Greece actually be able to meet its own growth/revenue projections in view of the negative impact on economic activity of the austerity measures. Some analysts had projected that Greece might need as much as a 60% to 80% haircut/write-down to be able to meet its credit and growth projections. What About other PIIGS: Portugal, Ireland, Spain and especially Italy still remain not fully addressed. Italy’s Berlusconi has made new promises during last night’s summit but these are not much more than the old promises made over last few months (and in fact part of Italy’s ongoing structural/financial debate for the last few years). However, by addressing Greece for now, having some confidence in the other big troubled economy, Spain, Eurozone leaders felt confident to gloss over Berlusconi’s ambiguous commitments – everyone in the room knows that Berlusconi is disingenuous, and even if sincere probably could not deliver. (READ - diplomaticallyincorrect.org/films/blog_post/should-merkel-sarkozy-be-laughing-at-italys-berlusconi-money-flash-by-ambassador-mo/38314 ). It pays for all now though to not acknowledge Berlusconi’s presumed impotence and/or insincerity (even as Merkel and Sarkozy chuckled last weekend at the prospect of Italy delivering on previous commitments). Putting off Bigger Structural Considerations till Later & Buying the Time for Now: The greatest challenges still lay ahead for the Eurozone, particularly difficult structural considerations, aligning fiscal and monetary policy and probably necessary “constitutional” changes to EU/Eurozone. However, the EU leaders have also bought themselves some time and perhaps credibility. The next big issue that will probably require greater urgency is fully defining and funding the EFSF. Commitments from the IMF, IMF shareholders and even China need to be flushed out along with further contributions from Eurozone members. It is also noteworthy by its absence in the conversation this morning, what role will the ECB (European Central Bank) play? The time bought on this issue is probably not much more than a week. And, as this has become a Rubik Cube, new and advanced version, it is likely that something else will pop out of place even as this morning other issues appear to have been resolved. By Ambassador Muhamed Sacirbey Facebook – Become a Fan at “Diplomatically Incorrect” Twitter – Follow us at DiplomaticallyX Related Reports at “International Financial Crisis Channel” - diplomaticallyincorrect.org/c/international-financial-crisis