Europe’s Troubled Economics Join the Rescue Team
LONDON — Can a bailout fund whose backers include some of the countries it may be called upon to bail out really succeed? That’s the question being asked by skeptical investors about the European Financial Stability Facility — the rescue fund of 440 billion euros, or $632 billion, that is being given new, amplified powers to help the euro zone end the sovereign debt crisis.
Under an agreement clinched on Thursday, the fund will be able to buy distressed government bonds on the open market and lend money to countries to recapitalize their banks.
The initial reaction by surprised investors bordered on the effusive. But details were scant and a devil lurked amid them — an inconsistency that skeptical analysts and hedge fund investors had begun to latch onto by the end of the trading day Friday.
The potential problem is that, after Germany and France, the facility’s next largest guarantors are Italy and Spain. And they happen to be the two countries that, with their fragile banking systems and high financing requirements, may be next in line for a bailout if the crisis deepens.
In the afterglow of last week’s summit meeting, the rescue fund, known as the E.F.S.F., was quickly labeled an embryonic European monetary fund. In fact, with Europe and the International Monetary Fund having committed close to $1 trillion to the crisis since it flared early last year, the extent to which the new European fund is seen as credible will go a long way toward determining whether the markets will accept Europe’s broader strategy in addressing its economic ills.
Read Full Article