Is the EU Sovereign Debt Problem Really Fixed?
By Greg Hunter’s USAWatchdog.com
When I first heard of the deal to fix the European debt crisis, I thought, “Is the EU Sovereign Debt Problem Really Fixed?” This is a complicated solution and mainly addresses sour Greek debt. Bankers are supposed to take a 50% cut in value of their bonds, which means taxpayers in Europe will subsidize the rest of the losses. There is also a new agreement on the European Financial Stability Facility (EFSF) or bailout fund that should raise it up to around $1.4 trillion (1trillion euros). Of course there are really no real details on where that money is coming from. It has been reported the IMF (read U.S.) will be a contributor to the fund and I supposed there is going to be a fair amount of freshly created currency dumped in to the EFSF bailout fund. Again, this is mostly dealing with Greek debt, but what about the debt of Spain and Italy? The combined sour debt of the two countries is 10 times bigger–$3.4 trillion!) Will the banks accept haircuts of 50%, and where will the money come from? Do you think the people of Spain and Italy will want the same deal Greece got? I think the answer to my question: “Is the EU Sovereign Debt Problem Really Fixed?” is NO WAY! They just kicked the can down the road a little further. Enjoy the nice bump in stocks today!
Here’s some more on this complicated hair ball of a deal from the Guardian UK: “Senior EU officials rushed on Thursday to prevent the early morning summit deal to resolve the sovereign debt crisis in the eurozone from unravelling.
They insisted that the agreement was “uniformly superior” to the one reached in July. However investors and analysts immediately feared a repeat of an early “sugar rush” followed by swift sobriety as details of the deal were unpicked.
Efforts by the officials to brief reporters on the substance of the accord – especially the “haircuts” on private holdings of Greek debt but also the beefed-up bailout fund, the European Financial Stability Facility – met derisive laughter at times as the lack of detail emerged.
This was mirrored elsewhere as economists picked holes in the so-called comprehensive settlement.
The EU officials conceded the package was, in effect, a structure or box and the contents were yet to be clearly defined. They have a few weeks of negotiations to come up with a fully-fledged deal and a swap of Greek bonds early in the new year.
Private creditors hold around €210bn (£185bn) of a Greek debt that totals €360bn. Under the proposed deal they will voluntarily accept a 50% cut in the face value of their bonds to around €100bn – or 47% of Greek GDP of €232bn. The 21 July deal involved a 21% cut in the “net present value” of the bonds.” (Click here for the complete UK story.)