Tags: Euro | Bailout | Fund | Mirage

CNNMoney: Some Experts See Euro Bailout Fund as ‘Mirage’

By Michael Kling   |   Thursday, 29 Sep 2011 02:49 PM

Most economists and investors agree that the 440 billion euro ($600 billion) fund being created to rescue Greece and preserve the euro isn’t large enough, CNNMoney reported.

Some experts, the article reports, say the fund would need up to 2 trillion euros to rescue Spain or Italy, which are also struggling under unsustainable debt loads. But obtaining those funds is doubtful due to political opposition.

European countries are pouring money into the European Financial Stability Facility (EFSF) and strengthening its powers.

With more firepower the fund, they hope, will prevent Greece from defaulting and causing a chain reaction of financial mayhem that leads to a global recession. Eight of the 17 eurozone countries have approved increasing the bailout fund so far.

"Even an enhanced EFSF will have barely 100 billion euros to throw at the bond market...minus, of course, any new commitments made to Greece" wrote Carl Weinberg, chief economist at High Frequency Economics, in a note to clients, according to CNNMoney.

Eurozone policy leaders are searching for ways to leverage EFSF funds. Ideas include bonds of distressed governments as collateral to borrow from banks to buy more bonds, using bailout funds to guarantee private investor losses, and using rescue funds to guarantee government debt purchased by the European Central Bank.

However, according to CNNMoney, investors are skeptical about those schemes.

Plus, they seem to have more support outside the euro region. That indicates that "the region's policy makers are still a million miles away from resolving the crisis," Jennifer McKeown, an economist at Capital Economics told CNNMoney.

"I'm not convinced that this bailout package is going to be remotely enough for the eurozone itself," Wilbur Ross, chairman of WL Ross & Co., a private equity firm, told Bloomberg Television. "I think it should start with a ‘T,’ not a ‘B.’”

In other words, trillions instead of billions.

Greece has implemented severe and unpopular austerity measures in an attempt to cut its debt. But many economists say austerity will hurt more than help.

Investors already believe that a Greek default is unavoidable and that banks will have to write off losses on their Greek bonds, perhaps as much as 50 percent.

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Most economists and investors agree that the 440 billion euro ($600 billion) fund being created to rescue Greece and preserve the euro isn t large enough, CNNMoney reported. Some experts, the article reports, say the fund would need up to 2 trillion euros to rescue Spain...
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