Tags: parisis | eurozone | rescue | bailout

Someone May Have to Save Eurozone’s Rescue Plan

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Thursday, 08 Sep 2011 03:41 PM Current | Bio | Archive

The German Federal Constitutional Court has ruled that Germany can legally participate for the time being (but not absolute freely) in the European step-by-step rescue/bailouts of Greece and the other eurozone peripheral countries that are in trouble.

Markets reacted relieved — putting aside, at least for the time being, the fact the German court didn’t give the German government a “blank check” for further bailouts and imposed a rule whereby the “budgetary commission of the German parliament” has to decide on all future bailout undertakings that include also everything related to providing of “guarantees.”

The German court has also ruled out any form of the so-called “eurobonds.” I would like to call it the “iron fist in a velvet glove ruling” whereby the grade of that iron will be “dictated” by the German voters who oppose any further escalation of rising bailout costs.

German Chancellor Angela Merkel has to take into account that about 25 deputies from her ruling coalition have declared they will vote against the revamped European Financial Stability Facility (EFSF) later this month or abstain. In my view, it’s only a question of time before the eurozone rescue operation will hit a road block.

Of course, I hope I’m wrong.

Meanwhile, long-time investors will have some time to protect themselves from the consequences of eurozone troubles spinning out of control.

Long-term investors should also take notice that on Aug. 16, Goldman Sachs’ Hedge Fund Strats Securities Division informed its private clients that European banks, with the Germans and French on top, are dangerously over-leveraged using disproportionally eurozone government debt sitting on their balance sheets as guarantees for leveraging.

For U.S. investors, it’s also very important to keep in mind that U.S. Money Market Funds’ exposure to European banks is in the neighborhood of 50 percent of their assets under management.

If anything goes wrong with the European banks, the Lehman disaster will be remembered as no more than an appetizer. The only effective cure for this enormous devastating European time bomb is urgently raising lots of capital for the European banks, notwithstanding the ECB doesn’t agree with that.

To me, the big question now is if that is actually possible or if the European governments will politically be allowed to help substantially (bail out once again) their banks before things get out of hand. Time will tell … but it could be not such a bad idea to be well prepared for “in case of … the unthinkable would happen.”

As far as I’m concerned, it’s hoping for the best and preparing for the worst … and this situation won’t go away quickly. You can be sure of that.

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HansParisis
The German Federal Constitutional Court has ruled that Germany can legally participate for the time being (but not absolute freely) in the European step-by-step rescue/bailouts of Greece and the other eurozone peripheral countries that are in trouble. Markets reacted...
parisis,eurozone,rescue,bailout
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2011-41-08
Thursday, 08 Sep 2011 03:41 PM
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