The EU Throws the Kitchen Sink at Its Problems

Euroland has apparently decided that things are getting out of hand and it’s time to flex a muscle or two. They’ve come up, reportedly, with a pretty aggressive plan to restore the status quo.

Bloomberg has as many details as anyone right now. Here are the highlights:

European policy makers unveiled an unprecedented loan package worth almost $1 trillion and a program of bond purchases as they spearheaded a global drive to stop a sovereign-debt crisis that threatened to shatter confidence in the euro.

Jolted into action by last week’s slide in the currency and soaring bond yields in Portugal and Spain, the 16 euro nations agreed to offer financial assistance worth as much as 750 billion euros ($962 billion) to countries under attack from speculators. The European Central Bank will counter “severe tensions” in “certain” markets by purchasing government and private debt.

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after the 14-hour meeting.

There’s a lot to absorb here and the details — where the devil of course lurks — are sketchy at this point, so I won’t opine too much. Suffice it to say that they have set up a fund to provide “assistance” to countries within the EU and have said that the ECB will purchase both public and private debt. In other words, this is their TARP slush fund combined with a commitment to quantitative easing. Naturally there are all sorts of fiscally responsible statements regarding austerity measures on the part of recipients of this bailout which will never come to pass.

Just a side note, but it’s worth noting that the IMF is joining in to the tune of 250 billion Euros. Keep in mind that 40% of those funds come from us. Why the EU which has a GDP approximately the size of the US should be receiving this aid has yet to be explained. I suppose we can take some solice in the hope that if California fails we will be able to tap them for similar assistance. Or maybe not, as they might well be tapped out after this bet.

Sorting all of this out is going to be interesting. Somehow, I have this feeling that Europe has taken a turn down a fork in a road that might well lead them someplace they’ll regret going. At the very least they have altered the nature of their monetary, social and political union in a crisis atmosphere with little forethought other than staving off default by a relatively meaningless member of that union.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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