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Will Europe's Show of Force Stem the Slide?
Bloomberg
reports, EU
Crafts $962 Billion Show of Force to Support Euro, Halt Global Crisis:
European
policy makers unveiled an unprecedented loan package worth nearly $1
trillion and a program of securities purchases as they spearheaded a
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 to a 14-month low and soaring bond yields in
Portugal and Spain, governments of the 16 euro nations agreed to make
loans of as much as 750 billion euros ($962 billion) available to
countries under attack from speculators.
The ECB will also embark on “very significant operations,”
European Union Economic and Monetary Commissioner Olli Rehn told
reporters in Brussels after the 14-hour meeting. “The ECB has taken a
decision to intervene in the secondary markets of government
securities.”
Under pressure from the U.S. and Asia to stabilize
markets, the European governments gambled that the show of financial
force would prevent a sovereign-debt crisis and muffle speculation that
the 11-year-old euro might break apart.
Europe’s failure to
contain Greece’s fiscal crisis triggered a 4.1 percent drop in the euro
last week, the biggest weekly decline since the aftermath of Lehman
Brothers Holdings Inc.’s collapse. It prompted President Barack Obama to
call German Chancellor Angela Merkel and French President Nicolas
Sarkozy yesterday to urge “resolute steps” in Europe to prevent the
crisis from cascading around the world.
Under the loan package,
euro-area governments pledged to make 440 billion euros available, with
60 billion euros more from the EU’s budget and as much as 250 billion
euros from the International Monetary Fund, said Spanish Economy
Minister Elena Salgado.
“We are placing considerable sums in the
interests of stability in Europe,” Salgado told reporters after
chairing the meeting.
In my last
comment, I said European leaders will do whatever it takes to shore
up the financial system and avoid debt deflation. With this move,
they're sending a strong signal that they will do whatever it takes to
support the EMU, and curb any speculative attacks on the euro and
European sovereign debt.
Following the announcement, the Euro,
stocks and Greek bonds are surging and default
swaps are plummeting. In my opinion, European leaders didn't have a
choice. Heavy speculative attacks were threatening
their bank funding system, and had they done nothing, a run on
banks was inevitable.
As for Greece, the WSJ reports that the IMF
approved its rescue package, and urged against debt default.
Finally, the FT reports that Barroso
fires salvo at markets:
José Manuel
Barroso, European Commission president, yesterday said he would propose
placing credit rating agencies under the direct supervision of a
European securities markets authority, writes Tony Barber in
Brussels .
Speaking to the European parliament, Mr Barroso
said: "Financial market players are still in business because
regulatory authorities and democratic institutions - ultimately, the
taxpayers - stabilised the markets in the financial crisis.
"We
acted swiftly then, and precisely for that reason, we will also act
swiftly if further regulation is required."
Mr Barroso's reference
to democratic institutions under siege underlined the extreme
seriousness with which European Union policymakers have begun to view
the accumulating risks to the eurozone's stability.
The 16-nation area's public debt is expected
to rise to 88.5 per cent of gross domestic product next year, a record
in the euro's 11-year history, the Commission estimated.
Mr
Barroso reserved his strongest language for credit rating agencies.
*François Fillon, French premier, last night said speculators would
fail in any assault on the euro, writes Peggy Hollinger in Paris
.
In a televised interview on TF1, the prime minister
acknowledged that both Greece and the euro had been suffering from a
speculative attack "for several weeks, which has in recent days
intensified". But he said the attack would fail because "the eurozone
is solid. Contrary to popular thinking, the eurozone is less indebted
than any of the big global zones".
Listen
carefully to President Barroso below. The message to speculators is
clear: you no longer have free reign to mount destructive
speculative attacks on European sovereign debt or the Euro.
Even
though it's late, Europe's show of force is resolute and decisive. In my
opinion, this will have a profound impact on markets, helping shore up
confidence and it will stem the slide to deflationary depression.
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Leo is like CNBC; he loves speculators only when they BUY BUY BUY.
Not exactly, but when I see them ganging up to destroy countries and currencies, I say to myself enough is enough.
Oh, come on. Do you think anyone really wants to destroy Europe?
Speculators can see that the European Monetary Union is unsustainable. A gut check is necessary to force Europe to take the sustainable path or disband the EMU entirely. I don't care which it is, but speculators forcing a showndown sooner rather than later can only be a good thing.
Leo, I've never been a huge critic of your rhetoric but "ganging up to destroy countries and currencies"? C'mon. The same people have been playing both sides of the trade.
All the ECB did last night was assure the destruction of Eurozone and likely cause a war in the process.
We will find out if the ECB can legislate various countries with competing interests and priorities. I say most assuredly that it cannot.
This type of sociapathic lunacy is a tragedy for all mankind.