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Europe Unveils Its Latest Deus Ex Machina Growth Bazooka: Encourage Debt-Cutting "Reform" With Even More Debt

Tyler Durden's picture




 

A year ago, in order to prevent the collapse of the Eurozone, the ECB came out with the first (of many) deus ex machina bazooka when it unveiled the OMT - a massive project so ambitious, it never actually existed (its legal term sheet has never been unveiled and never will be unveiled simply because it is by definition impossible) but was merely intended to scare everyone into submission by the ECB's sheer will (or stupidity - it is still unclear which prevailed). One day, the OMT will be tested only to reveal it was never meant to be put into use, but until that day Mario Draghi managed to buy Europe some time. Today, the Eurozone unveiled just how it plans to spend that time - by coming up with deus ex plan #2: much more (unfunded) debt.

Just out from Reuters:

  • EURO ZONE COUNTRIES CONSIDERING CHEAP LOANS AS INCENTIVE FOR GOVERNMENTS TO ENACT ECON REFORMS-DOCUMENT
  • TO QUALIFY, COUNTRIES WOULD HAVE TO DRAW UP LEGALLY BINDING PLAN FOR REFORM APPROVED BY MEMBER STATES-DOC
  • LOANS WOULD NOT BE LINKED TO COST OF REFORM BUT MEANT AS GENERAL SUPPORT FOR THE ECONOMY-DOCUMENT
  • LOANS FOR REFORMS WOULD NOT BE AVAILABLE TO COUNTRIES RUNNING EXCESSIVE MACROECONOMIC IMBALANCES OR UNDER BAILOUT-DOC

In other words, "encourage" debt-cutting reforms by dangling the carrot of even more debt.

Circular reasoning aside, this is fine and good - as we have shown many times in the past, the biggest failure of the Eurozone currently is the complete collapse of its monetary piping, as private loan creation growth in the Eurozone drops to record low after record low with every passing month.

And since European inflation just took a turn for the worse, absent some massive debt-boost strategy things will only get worse. Which in turn explains why suddenly Europe is fixated - once again - on pumping inflation stimulating debt at any cost.

So while on the surface this plan would make sense, if only to buy Europe some more time, before the revelation that the current setup simply does not work, there is one major snag:

  • NO FIRM PLAN YET HOW TO FINANCE THE LOANS, WHICH COULD BECOME THE NUCLEUS OF A EURO ZONE BUDGET-DOC

Oops. Then again, there is always the ECB, which everyone now expected to unveil some new and improved inflation-boosting project in the near future. One can only assume they will somehow be involved in the "financing" component.

And finally there is another problem:

  • DIJSSELBLOEM REJECTS IDEA OF FINANCIAL INCENTIVES FOR REFORMS
  • DIJSSELBLOEM IN FAVOR OF DEADLINES FOR REFORMS: HANDELSBLATT

Ah Europe, never a dull day. At least we would be tentatively inching back into those 3x levered Brussels caterer ETFs. Because the return of European summits seems just around the horizon...

 

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Fri, 11/22/2013 - 11:02 | 4180955 Racer
Racer's picture

Biden 'we have to spend money to save us from going bankrupt'

Fri, 11/22/2013 - 11:13 | 4180983 yogibear
yogibear's picture

They believe it in DC.

Fri, 11/22/2013 - 11:24 | 4180996 Peter Pan
Peter Pan's picture

It seems to me that there is an almost an unspoken agreement between the central banks to commit and permit roughly simultaneous feats of economic lunacy so as to keep the sheeple within the fiat enclosure until the inevitable slaughter takes place.

Fri, 11/22/2013 - 11:57 | 4181087 CrashisOptimistic
CrashisOptimistic's picture

GOP:  If you cut tax rates, economies are stimulated, GDP rises sharply and causes more people to pay taxes, increasing tax revenue and cutting deficits.  Except that didn't happen in the early and middle 2000s.

Dems: If you increase gov't spending, this raises GDP explicitly and sharply because G is a component of the GDP equation, and thus tax revenues increase and overwhelm the increased spending, reducing deficits.  Except that hasn't happened since 2008, and there was a deficit decrease in 2013 only because of Sequester and tax rate increase.

 

Do we see the magical thinking on both sides?

Fri, 11/22/2013 - 14:19 | 4181565 TBT or not TBT
TBT or not TBT's picture

Meanwhile, entitlements rise, sinking all boats.

Fri, 11/22/2013 - 11:02 | 4180956 EscapeKey
EscapeKey's picture

Debt needs to be financed? Krugman no doubt disagrees.

Fri, 11/22/2013 - 11:03 | 4180957 SWRichmond
SWRichmond's picture

TO QUALIFY, COUNTRIES WOULD HAVE TO DRAW UP LEGALLY BINDING PLAN FOR REFORM APPROVED BY MEMBER STATES-DOC

This is the standard IMF playbook.

Fri, 11/22/2013 - 11:40 | 4181043 moneybots
moneybots's picture

"TO QUALIFY, COUNTRIES WOULD HAVE TO DRAW UP LEGALLY BINDING PLAN FOR REFORM APPROVED BY MEMBER STATES-DOC"

 

Obama ignores the law.

Fri, 11/22/2013 - 11:05 | 4180959 Ignatius
Ignatius's picture
Europe Unveils Its Latest Deus Ex Machina Growth Bazooka:

 

Magnus Carlsen of Norway, new World Chess Champion

Defeats Vishy Anand of India 6.5-3.5

Fri, 11/22/2013 - 11:07 | 4180964 Cornholiovanderbilt
Cornholiovanderbilt's picture

Yes we can!!  Yes we will!! 

 

Fri, 11/22/2013 - 11:09 | 4180968 Martdin
Martdin's picture

Get to work, Mr. Draghi!

Fri, 11/22/2013 - 11:12 | 4180971 forwardho
forwardho's picture

EURO ZONE COUNTRIES CONSIDERING CHEAP LOANS AS INCENTIVE FOR GOVERNMENTS TO ENACT ECON REFORMS-DOCUMENT

Just so I have the logic streight.

They are going to lend aready insolvent Governments more money to spend in the hopes that said governments will spend less.

I got that right?

Right?

Fri, 11/22/2013 - 11:12 | 4180975 Skin666
Skin666's picture

I love the snarky European Tyler!

 

Mencken Reborn lol!

Fri, 11/22/2013 - 11:13 | 4180980 adonisdemilo
adonisdemilo's picture

The conditions preclude all the countries except Germany.

Oh well, we'll relax the rules, but just the one time.

Until the next time.

Fri, 11/22/2013 - 11:15 | 4180986 thismarketisrigged
thismarketisrigged's picture

as u post this article, pomo has begun here in the u.s markets.

 

35 pt dow loss at open? no problem, 45 pt turnaround, and lots more to come.

 

the fraud continues.

 

europe will begin qe very soon as well.

Fri, 11/22/2013 - 11:17 | 4180988 Peter Pan
Peter Pan's picture

I hope the Europeans can stay on track long enough for that doomsday train to arrive.

Jokes aside, the Eurpeans are a joke.

This situation reminds me of someone who as he was walking past a mental assylum noticed a mental patient sitting on the fence.

He stopped and asked him how many mental patients were in there.

The mental patient replied, " we know how many are in here, but do you know how many are out there?"

Draghi is running the mental assylum when he in fact should be in a straight jacket.

Fri, 11/22/2013 - 11:32 | 4181016 orangegeek
orangegeek's picture

Europe is just lining up the failures to justify the final solution.  Confiscation of bank deposits.

Fri, 11/22/2013 - 12:03 | 4181105 Rip van Wrinkle
Rip van Wrinkle's picture

And the European superstate.

 

Never forget, the Euro is a POLITICAL currency designed to crush each and every country within it. No economic power? No political power. QED.

Fri, 11/22/2013 - 12:27 | 4181158 TrustWho
TrustWho's picture

When a system harms the people it governs for behavior that gives that system life, the system will die. Savers in western civilization are being harmed. I do not care if you are a socialist, capitalist, communist, fascist or...., civilization is advanced by people who delay consumption today to build a better tomorrow.

This is a natural law that allows life to continue. Even plants "waste" energy to produce seed (save future generations). Humans maybe are so self-focused and greedy that the species may cease. Central Bankers think they are saving western civilization. How ironic, no?

Fri, 11/22/2013 - 13:27 | 4181317 iLiquid
iLiquid's picture

This is the central stupidity of ZIRP. In "theory" ZIRP works by beating down the interest rate on long-term loans that fund the risky yet rewarding long-term projects (infrastructure, R&D, setting up new production firms, etc.) In practice it hurt savers so much that, when said projects mature with their products ready, no one will have saved enough to afford them.

And not to mention the fact that even if one can manipulate the interest rate, one cannot manipulate the inherent risk that is normally associated with the interest rate...

Fri, 11/22/2013 - 12:40 | 4181182 q99x2
q99x2's picture

They actually have a plan that they think will work.

They have NATO forces practicing in the EU.

Fri, 11/22/2013 - 16:39 | 4182082 ZerOhead
ZerOhead's picture

 

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