Eurozone boosts current bailout fund

[Teh One Who Knocks]

The Associated Press


LUXEMBOURG – European finance ministers have raised their guarantees for the current rescue fund to allow it to lend out a total of euro440 billion ($626 billion), up from about euro250 billion currently.

The European Financial Stability Facility needs to guarantee more than its lending capacity to get a good credit rating and make the bonds it issues attractive to investors.

The ministers hope that the move, which was decided in principle in March, will make the 17-nation eurozone more resilient to the fallout of the exacerbating crisis in Greece and help ringfence other struggling economies.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

LUXEMBOURG (AP) — European finance ministers have made an important change to their future rescue fund, which they hope will help already bailed out countries regain access to debt markets.

Jean-Claude Juncker, who chairs the meetings of eurozone finance ministers, said Monday the European Stability Mechanism, which will come into force in mid-2013, will not have preferred creditor status when it helps countries that have already been bailed out.

Having preferred status means the fund would be repaid before any private creditors. That had been harshly criticized by many economists, who said it would deter banks and other investment funds from lending any money to already struggling countries.

[Arkady Renko]

I'm so happy that we're flushing the financial future of our countries down the toilet to help bankrupt countries that will end up defaulting anyway...

[Jezter]

I'm so happy that we're flushing the financial future of our countries down the toilet to help bankrupt countries that will end up defaulting anyway...

Im right there with you buddy! Makes me so happy to know me and in the worst case my future kids will still be paying for this shit.

[Arkady Renko]

No shit, it drives me mad to see this getting worse and worse. Only a few years ago, the majority in Germany finally accepted that we can't go on running massive deficits in the budget, pension and health care system every year and somehow hope that money will appear out of nowhere to pay for it in the future, leave alone with a shrinking population...so after a 40 year long money wasting orgy we finally start cutting the deficit and in some sectors even the existing debt and now we'll happily pile on a few hundred billion extra to save Greece alone?

Portugal, Ireland, Spain, I'm willing to help because it seems to me that they're willing to work hard and cut their deficits and most importantly they have a plan as to what they want to make a living from. The portuguese even voted for a new government that pledged budget austerity and market reforms, that's no small feat.

But Greece? Apparently most of the people there blame everyone from the EU, the IMF, their politicians and maybe even the gods of old for their situation, but nobody seems to take a minute to think about how every time the government down there tried to cut spending, start collecting taxes for real or maybe do away with some of the absurd privileges some groups enjoy, they chased them out of the office ASAP. I don't think they were forced to borrow all that money at gunpoint by the vile foreign banks and governments, they dug that fucking hole all by themselves. I say let them dig their own way out of the pit, those ungrateful svastika-cartoon-drawing leeches.

[Jezter]

Yeah, Greece's situation is what pisses me off the most. They start rioting and go on strikes when their government is trying to make cuts to save money sand save the country. They just want the money and not pay the price for it. That makes me blood boil. Different thing if they were humble and thankful for the help and not just fuck around when they get handed the Euros.
Plus, it was supposed to be MUCH more strict with the EU countries budgets and economies and the rules were basically kick them out if they start failing...well, when big countries had it rough and it was going under the EU limits, suddenly the rules weren't so strict anymore..and now we are fucked. I just have to hope the new rules and funds will be kept strict and even radical action is taken. EU has to stay strong and not let it fall like dominoes.

[Arkady Renko]

yeah, i feel cheated. the infamous no bailout clause in the treaty about the monetary union was supposed to prevent just that and I doubt the referenda in places like the Nehterlands and Austria would have been successful if people had known that the bailout clause would be ignored once push comes to shove.

[Jezter]

Yep... it is just sad that this kind of thing fuels the EU-critics even more and blind the people from seeing the good EU has brought and what will be lost if things break apart and countries fail totally.

[Deepsepia]

yeah, i feel cheated. the infamous no bailout clause in the treaty about the monetary union was supposed to prevent just that and I doubt the referenda in places like the Nehterlands and Austria would have been successful if people had known that the bailout clause would be ignored once push comes to shove.

This one will be a teaching exercise for generations to come.

The "no bailout" clause isn't operationally meaningful if there's no alternative mechanism, and if the costs of "no bailout" are too high. Its somewhat like passing a law "to keep healthcare costs down, everyone will eat healthy food, and not get drunk".

The omitted question is "And what if they do get fat and drunk and plow their car into a telephone pole?"

The EU financial design is simply a game theory fail. The Greeks have played the game as theory would expect . . .

I do think that the Germans neglect how much they've benefited by the the Euro. If the drachma were still the drachma, and the D-Mark still good as gold, I suspect lots of Germany's export-linked jobs would have moved to places with cheaper labor. In a weird way, one reason that Mercedes are still made in Germany is that Greece, portugal, Spain, Italy has kept a German-built car inexpensive enough in international markets, because the Euro is softer than the D mark would be.

[Arkady Renko]

This one will be a teaching exercise for generations to come.

The "no bailout" clause isn't operationally meaningful if there's no alternative mechanism, and if the costs of "no bailout" are too high. Its somewhat like passing a law "to keep healthcare costs down, everyone will eat healthy food, and not get drunk".

The omitted question is "And what if they do get fat and drunk and plow their car into a telephone pole?"

The EU financial design is simply a game theory fail. The Greeks have played the game as theory would expect . . .

I do think that the Germans neglect how much they've benefited by the the Euro. If the drachma were still the drachma, and the D-Mark still good as gold, I suspect lots of Germany's export-linked jobs would have moved to places with cheaper labor. In a weird way, one reason that Mercedes are still made in Germany is that Greece, portugal, Spain, Italy has kept a German-built car inexpensive enough in international markets, because the Euro is softer than the D mark would be.

you're mostly right with one exception. If the greek government hadn't cooked its books for years on end, they would have hit rock bottom much earlier and the debt load wouldn't have been all that dramatic. So it's a mixture of game theory fail and plain old fraud.

[Deepsepia]

you're mostly right with one exception. If the greek government hadn't cooked its books for years on end, they would have hit rock bottom much earlier and the debt load wouldn't have been all that dramatic. So it's a mixture of game theory fail and plain old fraud.

Yes, the outright fraud does color the story. But the system, as designed, rewarded fraud.

In that respect, it looks a lot like the US mortgage banking fiasco. We set up a system which said, "check these boxes on these forms, and you'll get a government guaranteed loan to buy an overpriced house". Not surprisingly, an entire industry grew up around people filling in purchase and loan applications with a nod and a wink, or outright collusion in filling in the numbers that "fit the bill".

The basic problem is this: when you give people access to the credit of a wealthy nation, you have to expect that the incentives will be there for fraud.

If you set up a system like that, where Greeks have access to credit backstopped by the German taxpayer, and you say "We don't need a mechanism for assuring that the Greeks furnish us with good accounts" -- well, such a system is "asking for trouble"

. . . and now its got that trouble.