Comments Monday May 11, 2010

– Så här i efterhand kan man säga att det var en fördel att det inte uppfattades som så allvarligt som det faktiskt var, sade finansminister Anders Borg om hur pressad situationen var på finansmarknaderna förra veckan.
Ekot

Man har tvingat in ECB i det här med kvantitativa lättnader.
Från europeisk sida har man tidigare kritiserat USA för att ha hållit på med de här enorma programmen då man varit ute och köpt statspapper och bostadsobligationer.
säger Robert Bergqvist, chefekonom på SEB.

Robert Bergqvist

Over 100 billion euros (130 Billion Dollar) was added to the value of Europe's banks on Monday
after policy makers agreed a massive rescue package to stop the Greek debt crisis spreading.
Santander and Credit Agricole led a 13 percent surge by Europe's bank index
10 May 2010

http://www.cnbc.com/id/37057579

1) The EU created a €60 billion fund based on article 122 (special circumstances).

Robert Peston, the BBC's business editor 10 May 2010:

ECB will not be creating new money in the eurozone in the process of purchasing such bonds,
because for every bond shunned by investors that it buys, it will sell other securities back into the secondary market to remove the additional liquidity it has created.

Even so, if it ends up making significant additional purchases of - for example - Greek and Portuguese government bonds, there are bound to be fears among German taxpayers that they are in effect rescuing their more profligate neighbours. And that if the price of those supposedly lower quality bonds were never to recover, well that would be a permanent loss falling on all eurozone citizens.

Three important caveats

The actual loans and guarantees may turn out to be harder to deliver than the words of comfort from eurozone government heads.

Second, 750bn euros is just over one-year's new borrowing by eurozone members
and a bit more than 10% of eurozone government debt.
So it's certainly not enough if investors were to start to lose confidence in the ability of some big countries - such as Spain or Italy - to honour their debts.

Which takes us to the import third caveat.
In the end, there won't be a cure for the underlying eurozone strains unless and until the record, unsustainable deficits of some eurozone members are reduced in a permanent way.

Full text

Don't blame the single currency for the failures of Keynesian economics.
Twelve years ago, economist Robert Mundell wrote a series of articles in these pages under the headline, "The Case for the Euro," touting the benefits of the single European currency due in 1999. The subsequent decade exceeded the rosiest scenarios set out by the "father of the euro." Sixteen countries came to enjoy prosperity and stability in the world's second most successful zone of sound money and free commerce (after the U.S.).
This year, the party has come to a crashing halt with Greece's financial meltdown, and one consequence has been a run on confidence in the euro.
Wall Street Journal editorial

Keynes

Mundell

the most obvious long term solution to the E.U.’s dilemma is some form of fiscal union;
a forced end to the disparity between Europe’s more prudent governments and the incontinent spendthrifts whose travails now threaten the whole show.

Of course this would mean battling with the sixteen disparate political traditions of the euro’s users.
And then there are those pesky electorates.

http://blogs.wsj.com/source/2010/05/10/what-e750-billion-will-get-you-nowadays/

The nuclear option
The accord profoundly alters the character of the European Union. The walls of fiscal and economic sovereignty are being breached. The creation of an EU rescue mechanism with powers to issue bonds with Europe's AAA rating to help eurozone states in trouble is to go far beyond the Lisbon Treaty. This new agency is an EU Treasury in all but name, managing an EU fiscal union where liabilities become shared.
A European state is being created before our eyes.
Ambrose Evans-Pritchard, 9 May 2010