If Europe’s leaders do indeed leverage their €440bn bail-out fund (EFSF) to €2 trillion or €3 trillion through some form of “first loss” insurance on Club Med bonds – as markets now seem to assume – the consequences will be swift and brutal.
Professor Ansgar Belke, from Berlin’s DIW Institute, said any leveraging of the EFSF would be “poisonous” for France’s AAA rating and would set off an uncontrollable chain of events.
“It counteracts all efforts made so far to stabilize the eurozone debt crisis, which are premised on the AAA rating of a sufficiently large number of strong economies. In extremis, it would probably cause the break-up of the eurozone”, he told Handlesblatt.
…..Dr Belke said France is already under pressure. BNP Paribas, Société Générale, Crédit Agricole may need €20bn in fresh capital, with knock-on risk for the French state. He warned that France’s public debt (Now 82pc of GDP) would shoot up to 90pc of GDP if the debt crisis rumbles on. Variants of this theme were picked up by other German economists in a Handelsblatt forum.
Yep – just like the Dexia Bank rescue created problems for Belgium’s credit rating so it will now need to be saved itself through the EFSF! France is not tripple AAA rated even now so how can it save others…so the whole house of cards is getting ready to come down unless …. maybe IMF using non-Euro money can prop up EFSF. We are robbing Paul to pay Peter then robbing John to pay Paul then robbing the Johnson family to pay John. Doubling down on debt with more debt is the act of economically ignorant fools and will end in tears. They must choose a lot of pain now or even more pain later, but they are going to have a lot of pain and it will hurt.