Europe gets serious. May double the EFSF, may burn bank senior bond holders

The Wall Street Journal are speculating that the size of the EFSF may double to almost €1trn, if German opposition can be overcome. This is an effort to assure markets that Europe can bail out Spain if neccessary.

Doubling the EFSF’s capacity to €880 billion would remove any doubt about whether the facility has enough firepower to prop up Spain’s government. Such an expansion would require a bigger financial commitment from Germany, where many lawmakers and voters are skeptical about bailing out European countries whose finances are in tatters.

Ireland became the first country to apply for help from the EFSF last week, and is negotiating a bailout package from Europe and the IMF that is expected to total roughly €85 billion. Greece received a €110 billion rescue package from the EU and IMF in May, before the creation of the EFSF.

Earlier today on RTE radio (5 minutes in) a spokesperson for European Commissioner Olli Rehn suggested that the EU may countenance restructuring of senior bank debt. Discussion on the Irish Economy website suggests that this restructuring may occur at the EU level (that is, little old Ireland may not be taking on the senior bond holders by herself).

These are both interesting developments, indicating that European leaders are beginning to consider measures of the scale required to ensure the survival of the Euro and Eurozone economies.

Update: The BBC report that Mohamed El-Erian CEO of PIMCO (the world’s largest bond fund and hence the biggest bond holder) is calling for the private sector to share some of the pain. From the BBC

“It is unreasonable to expect the Irish taxpayer… to bear all the costs,” he told the BBC World Service
“Our assessment…. has been that you need a broader burden sharing that also involves the European Union, the IMF and private creditors,” he told World Business News on BBC World Service radio.

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  • DC

    G’wan the EU – ‘eu can do it.

  • Itwas SammyMcNally whatdoneit

    Although the budget has to be sorted out it would be sensible that it was done against a backdrop of some knowledge of what Irelands debts actually are/finish up as.

    If the Plain People of Ireland have to swallow their economic medicine they should be informed of what their actual chances of economic survival are – otherwise they may not be arsed and decide to either emigrate or dismantle Leinster House.

  • dwatch
  • 21stcentury fenian

    It strikes me that this is absolutely the wrong signal to send to the bond and currency markets. It shows weakness / fear and not strength. I would expect Soros and co. will be doubling their bets against the euro and against eurozone govt debt with this type of news. The markets will be quiet till Monday because of the thanksgiving long weekend. But once Monday comes it could be downhill all the way to Xmas 🙁

  • DC

    I’m thinking once you out-speculate the speculators – you then burn the bonds, because they can’t speculate to accumulate against you – you being the State. Ergo – the State wins.

  • DC

    Combined state wealth versus combined private wealth.

    As Mick mentioned earlier a lot of speculation causes so much unnecessary damage to what are in essence still functioning economies.

  • DC

    Actually reminds me of a sort of gangsta-rapper money stand off:

    Battle

    “What? You wanna battle ME?
    “Yo man, how much money you got?”
    “What? You wanna battle ME?”
    “Yo man, how much money you got?”

    That’s how callous it can get, ah the markets dontcha love ’em!

  • Cynic

    and provoke another European banking crisis….yeah

  • Cynic

    except then the speculators will then speculate that you will do and pull ma reverse ferret on you

  • aquifer

    Frau Merkels intervention reminds me of Germany’s premature recognition of the independence of Croatia. And look at the trouble that followed that one.

    A haircut would have to happen very swiftly, so how would all those different EU countries co-ordinate it?

  • Alias

    I wonder how long it will take to realise that the EFSF are in Ireland to liquidate it? If stealing their reserve pension fund to pay off the eurosystem banks that the state retrospectively indemnified against their losses didn’t alert them and if stealing the assets of the state for the same purpose didn’t alert them, then perhaps a few simple maths will.

    150+ billion for the liability of the central bank to the ECB; 70 or so billion liability of NAMA, the 110+ liability of Anglo, the 100+ liability of the IMF/EU eurosystem loan, and the liabilities of AIB and Bank of Ireland (wherein the state is majority shareholder), the liability of the 32 billion in cash given to these banks, and that’s a figure of well in excess of 500 billion cost to Irish taxpayers of bailing out the eurosystem.

    That means that each income tax payer will have to pay 300k or so in extra taxes to bail-out the eurosystem. In other words, each income tax payer will have to donate 10k a year of his or her income for the next 30 years.

    Now, given that this bail-out of the eurosystem will deprive each income tax payer of 300k of his or her earnings, how is that taxpayer going to save for his or her pension when the state won’t be in a position to fund pensions?

    In effect, the taxpayer must forego a state pension and must also forego the ability to save a percentage of his or her own income to provide for his or her own pension.

    Do the Irish really understand what it means to bail-out the eurosystem?

  • Pete Baker
  • Alias

    “what their chaces of economic survival are”

    Non existant. Apart for the requirement to export all of the wealth that the state may produce to lenders elsewhere in the EU for several generations to come, their debt-laden economy (with 500+ billion plus of eurosystem debt) will diverge even more dramatically from the economies for Germany and France whom the monetary policies are devised, causing even more problems for its economy through inappropriate monetary policies than have been caused thus far.

  • steve white

    good god fix your twitter links