Well, the negotiation adage says that “if you fail to prepare you prepare to fail” and the unfolding story surrounding Dexia Bank illustrates this.

The ongoing Eurozone crisis has now turned the spotlight on the capitalisation of European Banks and a “negotiation” is going on between Eurozone institutions and the financial markets as to whether the Banks are strong enough to withstand expected defaults on sovereign debt from Greece, and possibly other states.

This negotiation is not unexpected. It has been apparent for some time that Greece in particular could not hope to pay its debts. So, there has been plenty of time to “prepare”, for the resulting negotiation with the markets – preparation being the first stage of any negotiation.

So, in July the European Banking Authority conducted stress tests on some 90 European Banks. Good idea except that the tests used outdated metrics and were widely derided by the markets. Indeed so inadequate were the tests that the now-collapsing Dexia came 12th out of the 90 banks assessed. This was despite the fact that it used a dangerous method of securing short term lending from banking wholesale markets to underpin its long term funding requirements – exactly the technique which caused Northern Rock to collapse as its access to short term funding disappeared.

If you skimp on preparation you will not win most negotiations – preparation is an investment of time. Having not used that time wisely, Belgium, France and Luxembourg have had to move hurriedly to prop up Dexia. Despite the protestations of Francois Baroi, the French Finance Minister, that no more banks will need to be rescued, it seems inevitable that there will be more to come. The Eurozone governments have not prepared properly for this negotiation with the markets and they will now be found out…