The EU turns to the IMF

In a surprise turn around, EU finance ministers are turning to the IMF for assistance with the growing debt problems throughout the eurozone.

EU leaders have been meeting and are in discussion on how to use the European Financial Stability Facility. The massive amount of money needed to bail out Italy, Spain, Greece and possibly Belgium is a staggering sum which cannot be raised by the 17 eurozone countries without using leverage to extend the reach of the facility. This also exposes the EU to much larger losses and the fears that it might not be enough to stop the contagion or leave a cushion if other countries need bailouts. European leaders said the fund could be increased to as much as €1 trillion as a result of the leverage scheme, which involves partially insuring government bonds and creating special investment vehicles to attract capital from private sector investors.

Analysts say the amount is closer to €750 billion, since the EFSF has only about €250 billion that is not already earmarked. The International Monetary Fund which measures its funds in a basket of currencies and has about $390 billion to work with.

That compares with an estimated €2 trillion in funding needs for the most troubled euro area economies, including Italy and Spain.

Beyond the lack of sufficient funds, there are serious questions about how much risk the IMF would assume if it began intervening in the sovereign debt market.

Central Bank Directors and National Leaders all agree that a plan is necessary and not a bandage. The news keeps saying the plan has to be a bazooka otherwise the markets will crash.

The EU has been dragging this on for way to long and Investors are at their wits end. The next announcement needs to be a complete and all inclusive plan, without speculation and guestimates. The markets are looking for a complete roadmap, ready to roll out immediately.

The Central bank scheme announced yesterday is a stopgap measure designed to help for only a short term it is not a fix or a roadmap. The EU leaders have promised to have a complete plan ready for their December 9th meeting.

The question the markets are asking, is where the funds would come from to meet a need of 2 trillion dollars, even with support and assistance from the US, China and the UK, there is a shortfall and not enough money. Each country is facing their own economic and debt crisis and cannot offer all the assistance that maybe needed.

In the meantime the markets wait.

 

 

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