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...