Is this the equation to save the Euro or to for the destruction of the Eurozone ?
(Greece + Itay + Spain) + (Ireland + Portugal + Belgium )/ Germany + France =ECB + IMF (Russia + China + Mexico + USA)
With the prospect of defaults by Greece, and the more remote potential of losses on debt from Italy, Spain, Portugal and Ireland, the banks will deplete the capital they have and will need to raise more. Italy’s debt is the largest, at about 1.8 trillion euros ($2.6 trillion) is five times larger than what Greece owes.
The last issue is how much money should be added to the existing European Financial Stability Facility, which would provide backup borrowing authority to support eurozone countries. There is broad agreement that the existing 440 billion euro fund is too small.
Greece’s creditors may be forced to write off as much as 60% of its 329 billion-euro ($458 billion) debt.
Across the continent, Ireland’s Brian Lenihan’s presented the 2011 Budget this past week; he stated that there will be budget deficit of €17.7bn and public debt/GDP ratio at 99% plus economic output. The Irish government is going to begin a period of “austerity” to try to handle this deficit internally after having already taken a bailout from the EU.
Back to Europe, Belguim’s bond yields have soars on their banking problems. There is a possibility that they may be facing some difficult times.
Dexia, a bank specializing in local government financing, has had its Belgian arm bought by the country’s government, with Belgium, France and Luxembourg in a €90bn guarantee. It’s the first lender to fall victim to the eurozone crisis
European officials began scrambling to find ways to lend financial aid to Portugal on Thursday after the debt-ridden Iberian nation bowed to market pressure and decided it had no choice but to ask for help.
Raising taxes and selling stakes in some of the country’s biggest companies to comply with the terms of the 78 billion-euro ($105 billion) aid package.
The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds reached a euro- era record of 10.78 percentage points on July 12 and was at 10.23 points yesterday, double the 5.11 points when former Prime Minister Jose Socrates sought the rescue on April 6.
The 10-year bond yield was at 12.03 percent up from 10.14 percent at the start of this month amid concern among investors about contagion from a potential Greek default.
The question is just how much can the EU afford, how much can the EU raise or leverage, conservative estimate estimates are place at 1.3 trillion dollars with leverage. The IMF emergency funds are below 400 billion euros. How much will Germany and France absorb? How will they survive if their borrowing rates soar?
Can Sarkozy and Merkel, reach an agreement this week with EU leaders and the ECB and the IMF. December 9th is D-day.