“The Bailout That Dare Not Speak Its Name”


Buttonwood details Europe's options:

The echoes of 2008 seem to be getting louder. We have a debate over whether to mount a financial rescue with a dispute between those who worry about moral hazard and those who fear the consequences of a bankruptcy. Greece has just been substituted for Lehman in this equation. One solution is for a massive transfer of funds from northern Europe to the south but politicians in the former region fear this will be about as popular as the bank bailout proved with US voters. So they are pursuing other technocratic options to prop up the system.

Wolfgang Münchau compares the technocratic option to "the subprime CDOs of ill-repute":

The latest crazy idea, which is being pursued by officials, is to turn the eurozone’s rescue fund into an insurance company, or worse, a collateralised debt obligation, the financial instrument of choice during the credit bubble. This is the equivalent of putting explosives into a can, before kicking it down the road. …  The big difference between a eurozone CDO and a subprime CDO is the the nature of the backstop. When the eurozone CDO fails, there are no governments that can bail it out because the governments themselves are already the equity holders of the system.

Drum watches the window closing:

Europe either ponies up eye-watering amounts of money for its teetering banks and teetering countries or faces financial catastrophe and the end of the eurozone. Eventually they'll have to decide which fate is worse.

(Photo: German Chancellor Angela Merkel attends a session of the Bundestag in which members will vote on an increase in funding for the European Financial Stability Facility (EFSF) on September 29, 2011 in Berlin, Germany. Many analysts see the increase as crucial for safeguarding the future stability of the Euro in the face of the current debt crisis in Greece. By Sean Gallup/Getty Images)