"Politics has been and will be the constraint on the latest iteration of Bailout Europe 4.0. We at the Global Macro Monitor really want to see Europe make it, for markets to rally, and for all to make money.
But the latest bailout announcement, which includes a Euro 600 billion loan facility from the IMF, which, by the way, exceeds the Fund’s total lending capacity, currently around $400 billion, doesn’t pass the political smell test. There are also rumors swirling of a Eurobond. As usual, the news has sparked a nut cracking short covering rally with S&P futures up over 25 points.
We see several political reality checks on the latest deal rumors, however, because at the end of the day any large sovereign bailout is a bailout of the major European banks. The global public doesn’t want here about global systemic risk and we expect huge political pushback on this one. Imagine how this will play in the U.S. Presidential election.
1) 79 percent of Germans oppose a Eurobond;
2) Occupy _______ will not be happy if taxpayers have to contribute more funds to the IMF to bailout European financial institutions, mainly French and German banks;
3) Italians will not be happy with severe austerity imposed by the IMF, which will require massive labor reforms, including cutting pensions and wages;
The financial rivets are popping and the latest rumors of new deals could buy some valuable time. But we’re beginning to believe it’s too late for Euro as we know it.
Maybe because there is no magic solution — x/ hyperinflation — as the true end game will be debt restructuring and the allocation of losses to those who caused crisis in the first place — i.e., the sovereign borrowers and private lenders – as it should be, no? Reality is setting in and Europe is running out of illusions, delusions, and quick fix short squeezes..."
at http://www.ritholtz.com/blog/2011/11/euro-fracture-it%e2%80%99s-the-politics-stupid/
But the latest bailout announcement, which includes a Euro 600 billion loan facility from the IMF, which, by the way, exceeds the Fund’s total lending capacity, currently around $400 billion, doesn’t pass the political smell test. There are also rumors swirling of a Eurobond. As usual, the news has sparked a nut cracking short covering rally with S&P futures up over 25 points.
We see several political reality checks on the latest deal rumors, however, because at the end of the day any large sovereign bailout is a bailout of the major European banks. The global public doesn’t want here about global systemic risk and we expect huge political pushback on this one. Imagine how this will play in the U.S. Presidential election.
1) 79 percent of Germans oppose a Eurobond;
2) Occupy _______ will not be happy if taxpayers have to contribute more funds to the IMF to bailout European financial institutions, mainly French and German banks;
3) Italians will not be happy with severe austerity imposed by the IMF, which will require massive labor reforms, including cutting pensions and wages;
The financial rivets are popping and the latest rumors of new deals could buy some valuable time. But we’re beginning to believe it’s too late for Euro as we know it.
Maybe because there is no magic solution — x/ hyperinflation — as the true end game will be debt restructuring and the allocation of losses to those who caused crisis in the first place — i.e., the sovereign borrowers and private lenders – as it should be, no? Reality is setting in and Europe is running out of illusions, delusions, and quick fix short squeezes..."
at http://www.ritholtz.com/blog/2011/11/euro-fracture-it%e2%80%99s-the-politics-stupid/
