Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
The Ultimate Demise Of The Euro Union - 1st Sep 14
Palladium Price Breaks Multi-Year High Over $900 - 1st Sep 14
When Complexity Becomes Chaos - 1st Sep 14
Designer War By Default - 1st Sep 14
Islamic State or Russia? Ten Key Questions Towards Pragmatism - 1st Sep 14
Mixed Emotions for the Gold Market - 1st Sep 14
These Clowns Are Dragging Us Into War with Russia - 1st Sep 14
Marx And The Capitalist Cancer Of Overproduction - 1st Sep 14
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

Another Euro Zone Crisis, Another Backdoor Taxpayer Bailout?

Interest-Rates / Eurozone Debt Crisis Dec 12, 2011 - 02:49 AM GMT

By: EconMatters

Interest-Rates Best Financial Markets Analysis ArticleExactly 20 years to the day after the creation of the European Union (EU) and the Euro currency, German Chancellor Angela Merkel successfully secured an historic agreement from all 27 current members of the EU, except Britain, forging a deeper economic integration in the euro zone on Friday, 9 Dec.


The Euro crunch summit also came away with an agreement to provide up to 200 billion ($268 Billion) in bilateral loans to the International Monetary Fund (IMF) to help it tackle the crisis, with 150 billion euros of the total coming from the euro zone countries.

The date that the European Stability Mechanism (ESM), capped at 500 billion ($666 billion), operation was also pushed up, the pledge to make private investors absorb losses in any future bailout for a euro nation is also to be scrapped.

While this new pact might be better to prevent future such sovereign debt crisis, others (including the US, and the IMF) view is that the summit has failed to adequately address the more immediately and urgent issues.

Ticking Euro Debt Bombs

Euro zone has to repay or roll over more than 1.1 trillion euros, around $1.5 trillion, debt due in 2012, with about 519 billion, or $695 billion, of Italian, French and German debt maturing in the first half alone, according to Bloomberg.  (See Graphic below from Spiegel with a shorter time frame sans Germany).

Graphic Source: Spiegel.de, 29 Nov. 2011

With Euro Zone sovereign bond yield spiking to record levels, probability is quite low for Italy and Spain to refinance next year at a sustainable rate going forward as there's not an effective backstop firewall

Germany, France would most likely need to pay a much higher interest rate due to this debt crisis contagion.  Belgium is no GIIPS yet, but its sovereign bond interest rate is closing on the 7% threshold that could require external bailout aid.

Graphic Source: Spiegel.de, 29 Nov. 2011

European Banks Need $153 Billion in Fresh Capital

There are also problems at the heart of the European banking system.

According to the European Banking Authority (EBA) in London (from BusinessWeek),
"....Banks in the European Union must raise 114.7 billion ($152.8 billion) in fresh capital as part of measures introduced to respond to the euro area’s sovereign-debt crisis."
Back in July, eight European banks failed the regularly scheduled stress tests with a combined capital shortfall of 2.5 billion. And things have deteriorated since then.  The updated figures from EBA take into account bank's sovereign holdings through the end of September.

Step-by-step Is Killing The Euro Zone

Europe, even with the aid from the IMF, would have a very difficult time covering between the sovereign debt rollover and shoring up the banks capital structure.  Essentially, the 'step-by-step' crisis solution as described by Merkel is a killing the Euro Zone.

The European Union of course is fully aware that markets are unlikely to be in the forgiving mood without some 'bazooka'.

The inaction could suggest
  1. The actual 'hole' is a lot more substantial than figures floating in public out there.  Kicking the can down the road as far as possible is probably the only viable option in the short-to-medium term
  2. Politics truly trumps economics as Germany could be using this crisis as a cudgel to gain power and control over the EU and on the global stage.  This also seems to indicate Germany has plenty of resource for this step-by-step waiting game.  
Another Backdoor Taxpayer Bailout Across the Pond?

Germany is reportedly still against the idea of a collective Euro Bond (although Italy's Monti seems confident that Germans would eventually see the light), and does not like the European Central Bank (ECB) embarking on large-scale bond purchases, like the U.S. Federal Reserve have been doing, either.

One of the messages out of the crunch summit is that private investors would not 'absorb losses in any future bailout for a euro nation,' which could suggest banks would get 100 cents on the dollar of the future troubled sovereign debt of Italy and  Spain, etc.

So we could also be looking at yet another backdoor taxpayer bailout of the banks -- similar to the U.S. Fed's '$1.2 trillion secret loan to banks, with repayment optional) --so banks would support buying the European sovereign bonds, while keeping the banking financial system afloat.

Somebody, somewhere has to put up the money and take the loss of the Euro Zone, and it does not look like EU would rise up to the occasion.  Eventually the markets would get past the Euro crisis and the world would move on.  But it seems the European taxpayer, just like their American counterpart, could end up being the last hero standing saving the global financial system, along with the world as we know it.

By EconMatters

http://www.econmatters.com/

The theory of quantum mechanics and Einstein’s theory of relativity (E=mc2) have taught us that matter (yin) and energy (yang) are inter-related and interdependent. This interconnectness of all things is the essense of the concept “yin-yang”, and Einstein’s fundamental equation: matter equals energy. The same theories may be applied to equities and commodity markets.

All things within the markets and macro-economy undergo constant change and transformation, and everything is interconnected. That’s why here at Economic Forecasts & Opinions, we focus on identifying the fundamental theories of cause and effect in the markets to help you achieve a great continuum of portfolio yin-yang equilibrium.

That's why, with a team of analysts, we at EconMatters focus on identifying the fundamental theories of cause and effect in the financial markets that matters to your portfolio.

© 2011 Copyright EconMatters - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014