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Monday, September 26, 2011

Catch 22 - The End of The Euro


The IMF and EU have got themselves into "right old pickle" by leaking snippets of a possible rescue plan, over this weekend, that may or may not save the failed Euro experiment.

The key element of this "plan" (were it to ever come to fruition) is an expansion by trillions of the EFSF (the European Financial Stability Facitlity), the EU version of printing money without having the collateral to back it up.

Unfortunately for the panicking Eurocrats (and believe me, they are panicking), leaking "plans" that have not been finalised, yet mention a 50% haircut on Greek debt, do nothing but further undermine and damage their ability to resolve this crisis. The fact that they claim the "plan" won't be ready for six weeks or so hardly adds to its credibility.

Unsurprisingly, the markets are pulling it apart.

Cue S&P, who have stepped up to the plate and specifically warned that if the EFSF is expanded, they will downgrade various countries in the region (including core EU members, ie France and Germany).

Why does this matter?

Downgrades will mean that the EFSF will be rendered useless, in other words the "plan" has been killed before it has even been finalised.

In other news, it seems likely that the ECB will announce an emergency rate cut of 0.5%.

Unsurprisingly the ECB denies this.

Oh, and one more point to brighten your Monday, the Greek haircut of 50% that everyone is talking about is of course nonsense; the actual haircut will in fact be 80%.

The EU "leaders" are displaying "bunker mentality", not a good sign.

Enjoy the rest of your Monday!

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