THE news from the latest EU summit, apparently the 14th special summit in 21 months, supports our long- standing assumption that the euro area and wider capital markets can muddle through their latest crisis of confidence.

Economists and the media will be quick to note the lack of detail in the communique, and the still frustratingly vague timetable for future developments. This is not, they will say, the definitive solution to the euro area’s woes.

They are right, but likely missing the point. A definitive solution requires greater fiscal integration, and as we’ve often noted, that can’t happen quickly – essentially because there is no political leadership, and because northern electorates currently don’t want to subsidise their reckless (or feckless) southern partners.

A frustrating, uphill task spread over many years lies ahead before the (fiscally) United States of the euro – and its attendant euro bond issuance – will arrive. But that doesn’t mean that markets will remain as focused on the missing fiscal architecture as they have been this last year or so – after all, they didn’t worry much about it during the first decade of the euro’s life.

Instead, the point is whether the euro area politicians have done enough to convince the markets that they are determined to ring-fence the euro area banking system from the pending write-downs of sovereign debt.

There will doubtless be renewed market jitters in the days and weeks ahead as uncertainties are revisited and probed, but on balance we think that they will eventually succeed, and with this in mind we continue to advocate a fully-diversified investment portfolio in which risk assets currently have a slightly higher weighting than usual.

Key points in the communique, as we see them, were:

An explicit focus on banking recapitalisation, based on write- downs using market prices at end-September. The funds are to be raised by mid-2012, from the private sector in the first instance, but if that is not feasible, from an enhanced EFSF – the latter being the key financial backstop that we needed to see.

The EBA estimate the recapitalisation needed at just over €100 billion for a core tier one capital ratio of 9%. It is not clear whether the capital will be raised in equity or bond form – but intriguingly, the communique refers to the capital buffer as a temporary one.

The communique also refers explicitly to the need to ensure both short-term and medium-term secured funding for banks via the ECB – a key recognition that banking liquidity, as well as solvency, needs to be safeguarded.

A voluntary private sector involvement in the case of Greece amounting to a 50% haircut on existing bonds – more than twice the size of the amount suggested back in July, but one that has been priced in to the bank recapitalisations noted above.

Whether this will be fully forthcoming is still unclear – and an involuntary involvement would be messier – but acknowledgement of the altered scale marks a greater degree of official realism in this respect. The issue these last few months has not been whether a larger Greek write-down can be avoided, but whether its wider impact can be managed – and we think it can.

A statement of intent to leverage the EFSF, via a yet-to-be-determined mixture of risk insurance and the utilisation of SPVs – this is where markets would like to see more detail most quickly. Unofficial briefings overnight seem to be guiding analysts towards an expanded reach for the EFSF of more than a trillion euros – sufficient, in our view, to provide both belt and braces for the capital markets. Indeed, as with the original US TARP – also greeted with criticism for being too small, and too imprecise – we would not be surprised to see the amount, when published, exceeding what may eventually be needed. We do not expect Italian or Spanish debt to be impaired.

:: Andrew Miller is regional office head at Barclays Wealth in Newcastle