Just as pessimism over euro-zone disorder was reaching its peak, the EU has announced
a massive bailout plan to counter what The Wall Street Journal calls a
"burgeoning sovereign debt crisis in southern Europe. The plan involves
setting up a pool of money using contributions from euro-zone
countries, an EU emergency fund, and the IMF. Is this going to work?
Business commentators, picking through the plan, aren't sure.
Some Met, Some Not "One of the primary reasons that the EU pressed to
have the facility in place so quickly," explains 24/7 Wall St.'s Douglas McIntyre,
"is because officials in the regions believe that 'wolf packs' of
speculators have bet against European sovereign debt and the euro
pushing their values down." This plan might stop the wolf packs, but
it's not going to solve the problem of "social unrest," he says, which
has recently been on display in Greece in response to austerity
- Will the Countries' Parliaments Approve? That's what Kevin Drum wonders (several have pointed out German opposition to these bailouts). "I wonder if any of the dozen or so fights it's going to take to get approval for this fund will just end up making Europe look even more feckless than it already does? Remember what happened when Congress initially voted against TARP?"
- 'How Much Time Has the EU Bought Itself?' Economist Tyler Cowen offers up this question along with some other observations ont he bailout plan. One of the them: "the major European powers would not have come up with a nearly $1 trillion bailout, also involving de facto loss of ECB independence, unless they were scared ****less." He also characterizes this plan as "a version of TARP-in-advance-of-the-panic and in my view that panic would have come today [Monday]."
- Bought 'Breathing Room While Making the Eventual Outcome Worse' Though financial world veteran Yves Smith
notes "the markets will applaud" the Fed's involvement, in general
she's worried. "If deflation kicks in within the countries at risk
(forget Greece, the eurozone ought to be in triage mode) the debt
burden become worse."
- Will 'Too Much, Too Late' Lead to Tension? Reuters' Felix Salmon
is concerned that the bailout's "enormity will only exacerbate tensions
between the euro zone countries over the long term. They're not all
partners together anymore: now they're bifurcating into the rich
lenders, on the one hand, and the formerly-profligate debtors, on the
- 'Whole New Level of Global Moral Hazard' Though Peter Boone and Simon Johnson acknowledge the plan looks a bit like what they've been advocating for a while, they're worried about the lack of discussion of "credible fiscal adjustment for Spain and Portugal." If the euro zone economies take off all this could work, but if they don't there are going to be problems, they say.