For some time I have taken the view that rescuing eurozone governments from their financial crises was too big a job for the European Central Bank, which should stick to keeping the banking system going. The only hope was that individual governments would be forced to face up to the reality of cutting government spending hard and quickly. They have failed to even begin to address this fundamental problem. As a consequence, it is now impossible for them to roll over their maturing debt, let alone raise new money. Instead there is now a scramble into cash as banks and hedge funds prepare themselves for sovereign defaults.
Posturing over geared stability funds, financial transaction taxes, installing unelected governments, putative treaty changes and finally enhanced fiscal supervision proposals have finally convinced markets that the only outcome is widespread government defaults. There is now no alternative and the fallout will have to be managed.
The inept handling of this crisis has weakened the eurozone’s banks to the point that they are unable to subscribe for more debt. Furthermore, the ECB cannot afford to see the liquidity it provides to European banks disappear into new government bonds that will default anyway. Therefore, it is now in the ECB’s interest to see sovereign defaults occur as soon as possible, unless the International Monetary Fund can come to the rescue, which is looking less likely by the day.
There is growing evidence that there is insufficient support for an IMF bailout from its member governments. The IMF’s charter is as an intergovernmental lender of last resort, not a supporter of government profligacy. Following the failure of the G20 meeting in mid-October there has been no substantive attempt to rescue the eurozone. The telephones might be buzzing, but there is no urgent meeting, suggesting that events must take their course.
[...]
Eurozone Defaults On Their Way | Before It's News
No comments:
Post a Comment