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EU Bailout 2010 (May)

The European Financial Stability Facility would sell bonds backed by the guarantees and use the money it raises to make loans to euro-area nations in need, the finance ministers agreed yesterday in Luxembourg. The new entity would sell debt only after an aid request is made by a country.

The ministers aim for ratings companies to assign a AAA rating to the facility, whose bonds would be eligible for European Central Bank refinancing operations. The fund will be based in Luxembourg.

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EU har givit klartecken åt att hjälpa Grekland (= rädda i första hand tyska och franska banker från förluster på sina grekiska statsobligaitoner) genom att tillsammans med IMF skapa
en Special Purpose Vehicle (SPV) i skatteparadiset Luxenburg, för att kringgå bestämmelserna som förbjuder EU från att finansiera medlemsländernas underskott.
Rolf Englund blog 2010-06-08

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Elisabet Kopelman, SEB:s räntestrateg, liknar upplägget /EUs paket/ vid subprimelån
DI 8 juni 2010

”Konstruktionen liknar subprime på det sättet att du omvandlar sämre kreditvärdigheter till guldkantade skuldpapper. Det gör du tack vare en garanti från starkare parter, och utan att det hamnar i balansräkningarna hos garanterna. Det är lite ironiskt att man väljer samma typ av konstruktion som tidigare fått skuklden för kreditkrisen”

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The two German members of the ECB's council voted against the move
The European Central Bank risks irreparable damage to its reputation by agreeing to the mass purchases of southern European bonds in defiance of the German Bundesbank and apparently under orders from EU leaders.
Ambrose Evans-Pritchard 11 May 2010

Nu hörs allt starkare röster på mer av gemensam finanspolitik.
En hel rad knepiga val väntar
SvD, Signerat Claes Arvidsson, 11 maj 2010

IMF-rapport varnar
Givet att Grekland ingår i eurosamarbetet är en devalvering inte en möjlig utväg för landet.
Tjänstemännen bedömer i rapporten att Greklands "effektiva växelkurs", inom eurosamarbetet, är övervärderad med upp till 30 procent,
och denna övervärdering måste pressas ut ur den grekiska ekonomin i en "lång och smärtsam process"
Washington Post/DI 12 maj 2010

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Washington Post article

IMFs dödsdom över Grekland och EU:s räddningspaket
Rolf Englund blog 2010-05-12

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Regain lost competitiveness
Inside the eurozone, this is possible only with falling wages, higher productivity growth than in Germany (and so soaring unemployment), or both
Martin Wolf May 11 2010

The threat that Portugal and Spain might be cut off from credit markets,
triggering a meltdown in Europe’s financial system, was all too real.
The euro zone’s rescue scheme is big and bold but leaves the ECB looking compromised
The Economist online May 11th 2010

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Taking on the 'wolf pack'
President Van Rompuy said:
"We can't have a monetary union at the end without some form of economic and political union,
and that is our big task for the coming weeks and the coming months."
BBC 10 maj 2010

How can a loan guarantee solve a problem of excessive indebtedness?
The funny thing is that the Germans, Ms Merkel probably included, really believed in the “no bail-out” clause.
They were shocked by events. They failed to see that Article 125 of the Lisbon treaty is the kind of law that is irrelevant until needed, at which point it becomes impossible to apply.
Wolfgang Münchau May 10 2010

The second, more worrying step is a European Central Bank decision to buy government bonds “to address... malfunctioning... securities markets”.
With this it caved in to pressure from eurozone sovereigns not to tolerate a bond strike against one of their number.
Financial Times editorial May 10 2010

Regain lost competitiveness
Inside the eurozone, this is possible only with falling wages, higher productivity growth than in Germany (and so soaring unemployment), or both
Martin Wolf May 11 2010

The project for a currency union. It rested on three central assumptions: f
irst, treaty-defined limits would constrain fiscal deficits of members;
second, to the extent that this failed, the “no bail-out” clause would constrain them; and,
third, member economies would converge over time.
Alas, none of this has proved to be true.

Some countries that have big deficits today, notably Spain, easily met the fiscal criteria, so long as their bubble economy was inflating: Spain ran a fiscal surplus in 2005, 2006 and 2007.

Markets long paid no attention to emerging fiscal frailty, rating all eurozone bonds similarly.

The story of the eurozone economy has, in consequence, been one of divergence, not convergence. The result is not just huge fiscal deficits, now that private-sector spending has collapsed, but a need to regain lost competitiveness.

But, inside the eurozone, this is possible only with falling wages, higher productivity growth than in Germany (and so soaring unemployment), or both.

Insisting that there will be no defaults, they are protecting the financial sector from its stupidity. The people of indebted countries are expected to pay, instead.

Is this going to prove an acceptable bargain, in the absence of a return to growth in stricken countries? Hardly.

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