£1.75 trillion deal to save the euro

Discussion in 'Wall St. News' started by ASusilovic, Sep 25, 2011.

  1. The three-pronged deal would set up a massive fund to create a "firewall" around the most indebted eurozone countries, allow for an "orderly" Greek default on at least some of its liabilities, and bail out European banks most at risk from debt.

    German and French officials came up with the strategy which aims to end the eurozone's sovereign debt crisis before it spirals completely out of control, plunging the world back into recession.

    The likely deal came ahead of a major new setback for the British economy - with BAe Systems, Britain's biggest manufacturer, poised to cut 3,000 jobs.

    Whitehall officials believe the job losses could be announced as early as this week and are likely to affect the company's military aircraft division in Warton, Lancashire, and Brough, Yorkshire.

    The eurozone deal, being brokered by the G20 group of nations, would seek to "ring fence" the crisis around Greece, Portugal and Ireland - preventing it from spreading to major EU economies such as Italy and Spain.

    It would involve the bailing out those European banks - mostly French - most at risk from their massive lendings to tottering economies.

    Greece, crucially, would be able to default on at least some of its more than £300billion debts but remain inside the eurozone. The Greek government's private creditors would bear most of the increased costs.

    At this stage, a new bail-out programme would be devised for Greece - with cash coming at least in part from the International Monetary Fund, in which Britain holds a 4.5 per cent stake.

    This could mean British taxpayers paying out more than the £1billion they are already slated to have to contribute under the terms of the first Greek bailout fund.

    Britain is not a member of the European Financial Stability Fund (EFSF) - which was set up last year to "preserve financial stability of Europe's monetary union" by providing temporary financial assistance to eurozone countries in difficulty.

    Most of the money in the new rescue package would come from the EFSF - limiting Britain's involvement. The fund is currently valued at £350billion, but would need much more cash pumped into it from its members states.

    Britain's banks, moreover, are not among the most exposed to Greek debt.

    The deal would also use cash to buy up the government bonds issued by Italy and Spain - which are currently going unsold and adding to the peril surrounding the eurozone's third and fourth largest economies.

    In total it would amount to euro 2 trillion - £1.75 trillion.

  2. Better to take a haircut than losing it all.

    Hairs grow back.
  3. interesting concept.

    any idea where the 1.75 trillion is coming from.

    dont tell me - european bullshit promises
  4. this is not a new story.

    it is not new news.

    it is propaganda.

    this shit has been rolled out every weekend for the last 2 months.

    what the fuck are these financial journalists doing?

    they are reporting nothing new.

    i dont get it
  5. dhpar


    this is big news. wait and see...


    Away from the stage-managed seminars, in the “private bi-laterals” and “break-out sessions” between officials, there was talk of progress. The Europeans, insiders claimed, were beginning to coalesce around a nascent plan.

    The idea had three key elements – a bank recapitalisation, a bigger eurozone bail-out fund, and a possible Greek default. The goal was to put a firebreak around the single currency periphery to prevent contagion spreading across Europe to the core of Spain and Italy in particular. “A political solution is not insurmountable,” one source said.

    According to insiders, a resolution package would be announced in one go and, until then, the public line would remain consistent – that Greece would not default and that the European Financial Stability Facility (the eurozone’s Eu440bn bail-out fund), would not be augmented beyond the terms agreed on July 21.

    But hints of the plan were being dropped publicly. The G20 communique stated: “We will ensure that banks are adequately capitalised and have sufficient access to funding to deal with current risks.”

    “Current risks” indicated something far beyond the recent European stress tests that called for 16 banks to find a little extra capital. It suggested many tens of billions of euros would be needed, not the paltry Eu2.5bn identified.

    Crucially, it would also mean French lenders either raising emergency private capital or being part-nationalised. With the banking system reinforced to withstand a Greek default and still capable of “financing the economy”, as Lagarde stressed would be central to a recapitalisation, markets’ fear of contagion through the financial system could abate. A second, crippling credit crunch could be avoided.

    More ambitious still was talk of augmenting the EFSF by leveraging up the fund through the European Central Bank – a variant of the proposal made by Geithner in Poland where it was dismissed by the German delegation.

    By using the EFSF to provide a loss-absorbing “equity” layer of around 20pc to protect a far larger “debt” tranche provided by the ECB, the facility could effectively be used to buy up trillions of euros of sovereign debt – providing the warchest needed to buy enough Spanish and Italian government bonds to keep yields at affordable levels.

    The German parliament still has to vote through changes to the function of the EFSF agreed on July 21, so the proposal is being denied but – sources said - is in the works.

    The final, more tenuous part of the plan would be a political quid pro quo for German bail-out support – a managed Greek default. Private creditors would be hurt and Greece subjected to a new IMF-led austerity programme, but the principle of burden sharing would be enshrined.

    Creditors who recklessly lent to Greece with little regard for the fundamentally flawed structure of the economy would relearn the first capitalist principle of buyer beware. And Germany’s Chancellor Angela Merkel would be able to demonstrate to her angry public that their taxes were not simply being used to bail out rich bankers.

    The plan would potentially put Europe ahead of the crisis for the first time since the dark days of 2008, delivering markets much-needed reassurance and ending the self-defeating “crisis of confidence” that Lagarde argued was in itself destroying the recovery.
  6. Make it 5 Trillion and don't buy government bonds with it but stocks...:)
  7. i cant honest believe anyone is falling for this bullshit.

    sarkosy and merkel are finished.

    the french banks owe more than 4 trillion euros.

    there is no way they can raise this kind of money.

    if they could they would have done it by now.

    the europeans are skint.

    hence the shit they are in.
  8. dhpar


    that's exactly what people were saying in 2009 about US banks...and they are more than fine today from balance sheet perspective. of course they profits in future is another story - the same will very likely go for europe's growth.

    but the point is that the balance sheet is solvable with proper policies and the willpower. this is probably the first time i see anything close to that.

    of course if you are short this weekend you do not need to bother to reply because you just talk your book. i am pretty much out of this crappy market...

    p.s. now i see you claim about 4trn euros debts and capital raises in your post? if i saw that i wouldn't bother to reply - you clearly are an idiot.
  9. Tsing Tao

    Tsing Tao

    So you really think they're going to throw 2 Trillion at the banks and experience no public backlash whatsoever? And this is going to solve the problem? Greece is suddenly going to be able to turn into an economic powerhouse? All the empty real estate in Spain suddenly will be occupied? And Ireland? Portugal?
  10. dhpar


    i did say none of that.

    my point is that you do not need 2trn when you have 2trn. even if we consider greece going out at 50 cent and every lost cent needs to be recapitalized then less than 75bn makes the trick for european banking sector (yeah that's how tiny the problem is...). on top of that this will be done largely by warrant and equity infusion via TARP like process (by governments and partly by ECB).
    this is what markets were saying to European politicians for over a year now - but as the saying goes the European politicians need to try every bad way first before they finally fix it.

    the importance of 2trn is that it keeps the market stable while the Greece is send to where it should be. the money will be available for buying new Greece bonds (and other bonds) so that everybody can sort their messy fiscal problems in peace and importantly for cheap rates. that's basically a definition of a controlled default. Ireland is already out of the worst mess and Italy and Spain is heading in a good direction. for instance US never did a 10% of what these countries did to improve their fiscal problems.

    i am not taking position on if it is bad, moral, etc. i do not give a shit. i live in europe and it is important to keep europe strong. US certainly does not give a shit about morality of anything...I guess that's what Tim told ministers in Poland...:)

    for me the most important thin is the permanent mechanism that is being discussed and pushed mainly by Germans. that's where future of EUR is...
    #10     Sep 25, 2011