"...But the real issue is Italy, as it has been at least since the summer. The Europeans are only beginning to get to grips with the centrality of Italy in the European debt web – glance at Bill Marsh’s recent graphic to get the point. Italy has over 1.9 trillion euros in debt outstanding; this is the third largest bond market in the world. In the aftermath of the Greek referendum announcement, the yield on Italian debt rose above 6.1 percent – the standard view is that if this reaches 6.5 percent, Italy will need to seek assistance in the form of a back-stop fund, to guarantee that there will be no default.
But the International Monetary Fund does not have enough resources available and the existing European Financial Stability Facility is also likely too small. Informed observers talk of the need for more than 2 trillion euros in a “stabilization fund” and while there is a lot of fuzzy math involved in contemporary international financial rescues, the IMF and EFSF combined would be hard pressed to provide more than a third of that.
This might seem like a good time for a summit – so the hat can be passed around world leaders. And some people do hope that China could provide an enormous loan, either directly or working with the IMF. China, after all, has more than 2 trillion euros worth of reserves (not all in euros, of course; much of this is in dollars).
But it’s not clear China wants to take the credit risk of lending directly – the Europeans might not pay back, after all. And the US is not keen to have China funnel such a large amount through the IMF; this would undermine the traditional US predominance there..."
at http://baselinescenario.com/2011/11/03/what-could-the-us-achieve-at-the-g20-in-cannes/
But the International Monetary Fund does not have enough resources available and the existing European Financial Stability Facility is also likely too small. Informed observers talk of the need for more than 2 trillion euros in a “stabilization fund” and while there is a lot of fuzzy math involved in contemporary international financial rescues, the IMF and EFSF combined would be hard pressed to provide more than a third of that.
This might seem like a good time for a summit – so the hat can be passed around world leaders. And some people do hope that China could provide an enormous loan, either directly or working with the IMF. China, after all, has more than 2 trillion euros worth of reserves (not all in euros, of course; much of this is in dollars).
But it’s not clear China wants to take the credit risk of lending directly – the Europeans might not pay back, after all. And the US is not keen to have China funnel such a large amount through the IMF; this would undermine the traditional US predominance there..."
at http://baselinescenario.com/2011/11/03/what-could-the-us-achieve-at-the-g20-in-cannes/
