European Bailout Rumor Du Jour Comes In Early
At least it is not the China bails out Europe one: thankfully that one is now finished. Instead it is something almost as stupid -i.e., something that was floated, then denied, then floated again, then redenied, from Reuters:
- EURO ZONE CONSIDERING FIRST LOSS INSURANCE FOR SPANISH BONDS UNDER ASISSTANCE PROGRAMME - EU SOURCES
- SCHEME COULD COST EU RESCUE FUND ABOUT 50 BLN EUROS FOR ONE YEAR, ENABLE SPAIN TO MEET FULL BORROWING NEEDS -SOURCES
- NO DECISION TAKEN YET ON BOND INSURANCE SCHEME, MAY BE SEVERAL WEEKS AWAY -SOURCES
Considering the source, Reuters, was pretty much 100% wrong on Monday when it said the Spanish bailout was imminent and Germany contingent, something Germany refuted shortly thereafter, we give this rumor about the same "likelihood" of being credible as every other one that Europe is fixed. But at least it managed to get the EURUSD higher by 20 pips.
More from Reuters Julian Toyer, the same guy who penned the Reuters exclusive "Spain ready for bailout, Germany signals "wait"- sources" which was, er, wrong.
The euro zone is considering aiding Spain by providing insurance for investors who buy government bonds in a move designed to maintain Spanish access to capital markets and minimize the cost to European taxpayers, European sources said.
One senior European source said the plan could cost about 50 billion euros ($64.5 billion) for a year. It would enable Spain to cover its full funding needs and trigger European Central bank buying of Spanish bonds in the secondary market.
If the gamble succeeds, it would achieve two important aims. Spain would be rescued without draining Europe's entire bailout fund and there would be no contagion to Italy.
Under the scheme, which officials say is under consideration in Madrid, Paris, Berlin and Rome, the euro zone's new permanent rescue fund (ESM) would guarantee the first 20 to 30 percent of each new bond issued by Spain.
Finnish Prime Minister Jyrki Katainen aired the idea after meeting French President Francois Hollande on Tuesday: "To safeguard our public money, we could study the possibility of the ESM intervening on the primary market with a leverage effect which guarantees just a part of the debt issued by Spain."
It would be the first time the euro zone had used this first loss insurance scheme, created last year to support vulnerable countries before they lose market access, unlike the full bailouts granted to Greece, Ireland and Portugal.
Another option would be for the ESM to buy Spanish bonds outright at auction, but that might be more expensive and not achieve the same degree of leverage. The rescue fund's rules allow it to buy up to half of any bond emission as part of an assistance programme.
The sources spoke on condition of anonymity because they were not authorised to talk about the discussions.
... but were certainly authorized to make stuff up and test market responses to half-backed schemes. Anyone remember the EFSF/ESM 3-4x leverage plan? Whatever happened there?