EU has solutions in case of euro state default

Allow me to parse this article for you. The key here is that rumours are generally not true until they are officially denied.  My comments are interspersed throughout the text and will be prefixed with “GR”.

http://finance.yahoo.com/news/EU-has-solutions-in-case-of-apf-14523022.html

EU: There is a rescue solution in case of a euro state default

BRUSSELS (AP) — The European Union’s top economy official said Tuesday that the 16 euro nations have a solution to rescue any member that risks economic collapse.

EU Monetary Affairs Commissioner Joaquin Almunia said it would not be clever to give out details in public “but the solution exists.”

GR – riiiiight!

Investors see a risk that euro-zone nations like Ireland, Spain, Portugal, Greece and Italy could default on debt payments and are charging them more to borrow on government bonds.

Almunia said this solution would kick in before a member nation needed to approach the International Monetary Fund for a bailout.

“Don’t fear, we are equipped intellectually, politically, economically to face this crisis scenario,” he said in a speech at an event organized by the European Policy Centre think tank. “But by definition this kind of things should not be explained in public.”

He also said “it is possible and it is reasonable” for two or more euro countries to issue bonds together but it is not “politically viable today because some important member states said no.”

GR – Here is a potential solution that only one phrase ago we were told should not be discussed in public and that, by the way, is not viable because it has already been rejected by some “important” member states.

Germany has denied reports that it was weighing up issuing bilateral bonds with other nations — although German Chancellor Angela Merkel said last week that euro nations would “find ways of solidarity” if necessary. Germany has also refused to consider a euro-zone bond.

GR – Win a cigar if you can guess which is the “important” member state mentioned above.

Almunia said it was unlikely that the European Commission could issue more bonds to help out EU nations because treaty rules forbid it from running a deficit. The EU executive is already selling bonds to help pay for a euro9.6 billion ($12 billion) bailout for Hungary and Latvia.

GR – Let me get this straight. The European Commission couldn’t issue bonds because they are already at the limit. Also, if member countries need help, it means that they are already at the bond issuing limit themselves otherwise they wouldn’t need EU help right? Furthermore, the second paragraph of this ridiculous article already told us that member countries can’t issue bonds because investors are charging exorbitant rates (and rightly so I might add). So then, who is there left exactly that can issue bonds? If nobody can, then how else we going to raise financing? Since we are at the limit of what can be issued, if we overstep the limit, why would investors have any faith in the rules and regulations that had been set by the geniuses in our governments? And if we decide to flout the rules, why should investors not charge the EU exorbitant rates of interest?

He also rejected speculation that any euro nation would quit the zone — a move that might allow the country to devalue its currency and stoke sluggish demand.

“Who is crazy enough to leave the euro area? Nobody,” he said. “The number of candidates to join the euro area increases, the number of candidates to leave the euro area is zero.”

GR  – What a crock of shit!! It is not weaker members that might leave the monetary union.  It is the strong member that might you idiot. Leaving the monetary union guarantees that financing costs will skyrocket thereby accelerating the demise of the secessionist member. Conversely, due to its stronger economy and higher sovereign debt rating might entice Germany to leave the union so as not to be dragged down by all other countries. This idiot completely fails to realize that weaker countries need the union more than the union needs them.

The EU’s executive Commission says that the shared currency has helped create a safe haven for member nations, increasing trade between them and helping shield them against the worst of the global financial crisis.

GR – Yup! They were so shielded that we are shoveling hundreds of billions of Dollars up their wazoo because they are so shielded.

But he said he was concerned by recent exchange rate volatility, even though he welcomed the recent fall of the euro against the U.S. dollar.

Almunia said the current euro exchange rate of $1.26 was “within the range of what we can consider normal” because it fell between $1.20 to $1.30. He said the EU’s executive still sees the Chinese yuan as undervalued.

He was more pessimistic about the economy after a raft of gloomy data indicated a bad start to the year. He said “downside risks are bigger” than in January, when the Commission forecast that the euro-zone would contract 1.9 percent this year and the entire European Union by 1.8 percent.

Almunia said governments needed to lay out plans to cut public debt in the longer-term to stabilize their economies.

GR – That’s actually a sensible idea. But how does it square with selling more bonds exactly?

But he said it was too soon for the European Union’s 27 nations to consider follow-up stimulus programs to the plans they have already announced to stoke growth this year.

Existing spending plans cost 3.3 percent of the EU’s gross domestic product, he said, including 1.1 percent of GDP for stimulus programs and 1.7 percent of GDP for ‘automatic stabilizers’ when governments spend more on welfare as the economy slows.

GR – Let me summarize that for you. When in danger or in doubt run in circles, scream and shout.

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4 Responses to “EU has solutions in case of euro state default”

  1. Breaking up the Euro « Guido's temple of the absurd Says:

    […] up the Euro By guidoamm As I speculated some two years ago, it seems to me that if anyone should leave the Euro it is Germany. The rationale is that weak […]

  2. Something is not confirmed till government officially denies it « Guido's temple of the absurd Says:

    […] guy has evidently learned nothing from one of my favorite Pinatas Joaquin Almunia whom incidentally has made a real sudden disappearing […]

  3. A study in hypocrisy and political expediency « Guido's temple of the absurd Says:

    […] https://guidoromero.wordpress.com/2009/03/03/eu-has-solutions-in-case-of-euro-state-default/ […]

  4. guidoamm Says:

    Today I needed to refer to this post from a year ago but realized that AP is no longer carrying the original story in its archives. Upon a google search, I found a reference of the same story carried by Reuters. However, even the Reuters archive failed to bring up the story. The same google search also found the same story carried by Fox and the link is still active.

    http://www.foxbusiness.com/story/markets/economy/eu-solutions-case-euro-state-default/

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