Stephanomics: “broad lessons for the eurozone are already clear, and not encouraging”

Market Moves notes the reaction to today’s events in their London Market’s closing comments

Worries over stability in the Emerald Isle are being compounded as the bailout becomes more and more political by the day, with the opposition party Fine Gael calling for a snap general election, citing public distrust over the handling of the crisis. The risk of contagion still lingers over European markets, with traders now eyeing up the next sacrificial lamb. Spanish and Italian markets are down more than 2% with Portugal faring better, down just over 1%. A 1.3% fall in the Dow Jones EuroStoxx 50 index helps highlight a broad sell off, as its coverage of major blue chips from within the EMU shows it is outselling the benchmark British and German indices.

And the BBC’s Stephanie Flanders notes that “some broad lessons for the eurozone are already clear, and not encouraging.”

The first lesson is that Europe is further than ever from a pragmatic approach to the debt mountain sitting on the balance sheets of Europe’s more troubled banks.

Negotiators appear to have gone into the Irish negotiations with an assumption that senior creditors to Ireland’s banks will not see their bonds restructured as part of the deal.

If so, the eurozone is pressing ahead with the same approach it has followed ever since the collapse of Lehmans set us on this path. That is: when in doubt, sign another blank cheque to private creditors, and try not to think about the money, or the moral hazard.

And she also reminds the eurozone of an important point

This is what should be troubling Europe’s leaders about Ireland. Greece is seen as a country that broke the rules and has to pay. Ireland has its faults, which European officials may choose now to play up. But, at bottom, it is a country that played by the rules of the euro and failed. Other countries striving to make a go of the single currency will reasonably ask whether the same fate awaits them.

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  • DC

    Right it is time to call in Angela Merkel for her to deliver this haircut if not actually behead some of these private returns.

    Also, the markets crap themselves whenever a vote or election is to be had – they know fine well it’s all toxic shit just about to land on the taxpayer’s laps to deal with – to pay off.

    Merkel, Merkel, where is Angela Merkel and her haircut.

    No to taxpayers footing the bill.

    Time for an Irish election and vote no to this and default.

    (Ps – in conjunction with election planning Ireland should start building soup kitchens and bread mountains.)

  • Oracle

    These loans were deliberately protracted to give the markets the appearance that Ireland possibly could have managed without the loan (it couldn’t)
    The real reason is the Euro Zone don’t want the markets undermining the very much in trouble Gigantic Spanish economy because the Eurozone cannot afford to bail out the Spanish economy without the Eurozone collapsing completely and the wealthier States cutting and running

  • slug

    What a pathetic situation.

  • joeCanuck

    Is money real? One thing that puzzles me, being quite economically illiterate is, where does the money go when it is announced that billions have been lost. Doesn’t somebody have it?You may have bought a house and are sitting on negative equity but the person you bought from has the money you paid.

  • Pete Baker

    “The real reason is the Euro Zone don’t want the markets undermining the very much in trouble Gigantic Spanish economy because the Eurozone cannot afford to bail out the Spanish economy without the Eurozone collapsing completely and the wealthier States cutting and running”

    And the markets know that.

  • Joe,

    It is like any insolvency. It goes into “Money heaven”

  • DC

    Money is, credit isn’t – as Gillian Tett was saying on Newsnight tonight the word credit derives from Latin – meaning ‘to believe’.

    Hence the credit aka toxic debt needing repaid by taxpayers using real money I’m afraid.

  • joeCanuck

    Seymour,

    Is that what they’re calling Wall Street today?

  • joeCanuck

    Ah, DC,
    That may explain it for me. Promissory notes with nothing to back them. Like a pyramid scheme. Jail the feckers.

  • Almost Joe,

    The difference with Wall Street is that money can come back from the dead!

  • Reader

    joeCanuck: You may have bought a house and are sitting on negative equity but the person you bought from has the money you paid.
    But he sent most of his profit to China in exchange for consumer goods, which he sends to landfill over the next 5-10 years. Plus the foreign holidays.
    Unless he was really stupid and started to build another house with his profits, in which case half of the money went to eastern europe.
    Net result, 50k house + 100k debt, but half built house in a bog.

  • joeCanuck

    Yes, I forgot about entropy.