Update 11/28: Bloomberg News reports that the IMF denies there are any talks to bail out Italy. Italy’s paper, La Stampa, had earlier reported that the IMF was preparing a 600 billion euro package, which I reported in this story.
Reportedly, the problem with the bailout is that neither the IMF nor the ECB has the money it would take to deal with a problem of this magnitude as of yet.
Other solutions to the potential collapse of the euro involve creating a euro fiscal union that gives the IMF fiscal governance over individual members.
Another possibility, which runs along the same lines, but is far more reaching, is the use of Eurobonds. Under this plan, the Eu would offer a bond based on the assets of all Eu nations who would pool their resources to offer the bonds. Any member nation with more than a 60% debt to GDP ratio would be subject to governance by centralized administrators who would force fiscal austerity.
Who really thinks that will work? As soon as the governing body tries to enforce it, the union will break apart. Riots will be the least of it. The countries will just take off and say forget this when they have to pay up, at least that is my take on it.
The credit rating agencies have already warned that they will downgrade all the euro nations who join in the Eurobond venture.
Andrea Merkel is balking at the idea of a eurobond. German taxpayers are already bearing much of the burden produced by the many bailouts. She would consider elite bonds with the member nations who have a Triple AAA rating – Germany, Finland, Austria, France, the Netherlands, and Luxembourg. It would create a protective wall around them.
Is a U.S. bailout still in the works? Obama said today, November 29, that the U.S. will not provide financial help. That is a bit disingenuous since any money the IMF expends will include our 20% donation.
Original Story: This is great news for Paul Krugman! We might get to bail out Italy, Spain and the Euro. We have so much extra money here, and everybody is working, so what else can we do?
The IMF might be drawing up a €600 billion (£517 billion) bailout package to save the some of the more avaricious European countries. These bailed out countries then have to promise to launch austerity measures in exchange for hundreds of millions of dollars.
Alarmingly, the bailout might include guarantees which could allow for a complete takeover of the economies of individual countries if the countries don’t abide by the agreements. It’s called “fiscal enforcement authority” by the IMF and Eu. The IMF and Eu would allegedly enforce only the fiscal discipline the borrowing countries have already agreed to. It will be called the euro-zone pact and non-euro countries such as Britain will be allowed to join.
This pact would inspire the ECB (European Central Bank) to give another bailout, which they are open to doing.
Some of the countries are concerned about loss of sovereignty under this deal – ya think? Whoever controls the nation’s purse strings, controls the nation.
The Eastern Bloc will sign on because they are desperate.
Any country signing on to this is selling their souls for a bailout that is meaningless unless they cut their spending and redirect their entitlement mentality among other things. So, maybe these countries should consider enforcing austerity immediately and keeping their sovereignty.
Andrea Merkel is also willing to consider a two-tiered Eu. which the poorer countries dread.
Ultimately, if the euro goes down, the results will likely be “catastrophic” to quote Gordon Brown.