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Sep 24, 2011

GATA | THE GATA DISPATCH: Eurozone bailout scheme: Spend infinite money without democratic approval

Eurozone bailout scheme: Spend infinite money without democratic approval

Multi-Trillion Plan to Save the Eurozone Being Prepared
By Philip Aldrick and Jeremy Warner
The Telegraph, London
Saturday, September 24, 2011
European officials are working on a grand plan to restore confidence in the single currency area that would involve a massive bank recapitalisation, giving the bailout fund several trillion euros of firepower, and a possible Greek default.
German and French authorities have begun work on a three-pronged strategy behind the scenes amid escalating fears that the eurozone's sovereign debt crisis is spiralling out of control.
Their aim is to build a "firebreak" around Greece, Portugal, and Ireland to prevent the crisis spreading to Italy and Spain, countries considered "too big to bail."
According to sources, progress has been made at the G20 meeting in Washington, where global leaders piled pressure on the eurozone to fix its problems before plunging the world back into recession. In a G20 communique issued on Friday, the world's leading economies set themselves a six-week deadline to resolve the crisis -- to unveil a solution by the G20 summit in Cannes on November 4. 

Sources said the plan would have to be released as a whole, as the elements would not work in isolation.
First, Europe's banks would have to be recapitalised with many tens of billions of euros to reassure markets that a Greek or Portuguese default would not precipitate a systemic financial crisis. The recapitalisation plan would go much further than the E2.5 billion (L2.2 billion) required by regulators following the European bank stress tests in July and crucially would include the under-pressure French lenders.
Officials are confident that some banks could raise the funds privately, but if they are unable they would either be recapitalised by the state or by the European Financial Stability Facility (EFSF) -- the eurozone's E440 billion bailout scheme.
The second leg of the plan is to bolster the EFSF. Economists have estimated it would need about E2 trillion of firepower to meet Italy and Spain's financing needs in the event that the two countries were shut out of the markets. Officials are working on a way to leverage the EFSF through the European Central Bank to reach the target.
The complex deal would see the EFSF provide a loss-bearing "equity" tranche of any bailout fund and the ECB the rest in protected "debt." If the EFSF bore the first 20 percent of any loss, the fund's warchest would effectively be bolstered to E2 trillion. If the EFSF bore the first 40 percent of any loss, the fund would be able to deploy E1 trillion.
Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic.
The arrangement is similar to the proposal made by US Treasury Secretary Tim Geithner to the eurozone at the September 16 EcoFin meeting in Poland. Gathering turmoil in financial markets has convinced Germany to begin work of some kind of variant of the US plan, despite having initially rejected the notion as unworkable as threatening to compromise ECB independence.
The proposal would be hugely sensitive in Germany as its parliament has yet to ratify the July 21 agreement to allow the EFSF to inject capital into banks and buy the sovereign debt of countries not under a European Union and International Monetary Fund restructuring programme. The vote is due on September 29.
As quid pro quo for an enhanced bailout, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone. Under the plan, private-sector creditors would bear a loss of as much as 50 percent -- more than double the 21 percent proposal currently on the table. A new bailout programme would then be devised for Greece.
Officials would hope the plan would stem the panic in the markets and stop bond vigilantes targeting Italy and Spain, which European and IMF figures believe should not be in any immediate distress but are in need of longer-term structural reform.
Delegates at the IMF meeting in Washington claimed that there had been "a visible shift in pace and mood" to address sovereign debt problems, particularly in the eurozone.
But George Osborne, the Chancellor, said today: "No one here has put forward a plan for that. Greece has got a programme and needs to implement it."

* * *

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MarketWatch | Weekly Rounup: The week's top ten videos


MarketWatch

Weekly Roundup
SEPTEMBER 24, 2011

The week's top 10 videos on MarketWatch

By MarketWatch



In case you missed them, here are the 10most popular videos that appeared on MarketWatch for the week of Sept. 19-23:

Where small houses mean big sales

The housing market is a bust, with builders struggling and new-home sales sunk in the mud. But that's not the case at one development in suburban Chicago, where prices are rising due to strong demand. Why? It's all in the design. Amy Hoak reports.
 Watch Video Reports.


Mossberg reviews the Samsung Galaxy S II

Walt Mossberg reviews Samsung Galaxy S II that's hot challenger to the iPhone that has been flying off the shelves overseas and is now coming to the U.S.
 Watch Video Report.


Gold and the dot-coms: comparing the bubbles

Investor enthusiasm is particularly keen on the yellow metal, around $1,800 an ounce. How does gold's rise compare to the rise of the Nasdaq Composite Index during the 1990s? Mark Hulbert does the charting, and comes away with compelling findings. Laura Mandaro reports.
 Watch Video Report.


Greece may survive after all

Greece tries to avoid a default, while S&P downgraded Italy's sovereign debt. Also, GM is moving to sew up ties with China's SAIC Motor Corp. Plus, flu shots are a tough sell to consumers so far this season.
 Watch Video Report.


I was a Fannie Mae executive

Former Chief Credit Officer Edward Pinto explains how it all went wrong.
 Watch Video Report.


Secrets of the second marriage

Elizabeth Bernstein looks at the secrets of the second marriage. What makes a second marriage different, better and more likely to succeed, according to census data?
 Watch Video Report.


Fed's track record casts doubt on QE3 success

Data on economic and bank-reserve growth stretching back 80 years suggest that the economy doesn't always do well after the Fed eases, according to H.C. Wainwright's David Ranson. That's not good for long-term stock investors. Laura Mandaro reports.
 Watch Video Report.


Why are you shrinking?

Why are you shrinking? Starting in their late 30s, it's normal for men and women to lose about a half-inch in height every 10 years. Melinda Beck looks at what point does it get worrisome and what can be done to help.
 Watch Video Report.


Apple's stock reaches record high

Apple shares finished Monday at 411.63, up 2.8%, despite a widespread selloff everywhere else, setting a new all-time closing high for Apple stock and just the third close above $400.
 Watch Video Report.


Did H-P board blow it by selecting Whitman?

Rolfe Winkler discusses how Meg Whitman might impact Hewlett-Packard as a corporation now that the board of directors has selected her as the company's CEO.
 Watch Video Report.

NYT: Today's Headlines: Palestinians Request U.N. Status; Powers Press for Talks


BUSINESS

Latest News at Time of Posting

11:12 AM ET
U.S., China Pressure Europe on Debt
11:06 AM ET
Mme. Lagarde Goes to Washington
9:28 AM ET
Geithner Tells Europe It Must Work Together on Debt Crisis

Today's Headlines



TOP NEWS

Palestinians Request U.N. Status; Powers Press for Talks

By NEIL MacFARQUHAR and STEVEN LEE MYERS
After the Palestinian Authority asked for full membership, international powers reached a timetable they hoped would restart Israeli-Palestinian talks.

U.S. Pushes Europe to Act With Force on Debt Crisis

By MARK LANDLER and BINYAMIN APPELBAUM
President Obama is lobbying Germany and France to take coordinated measures to prevent Greece's woes from engulfing its neighbors.

Obama Turns Some Powers of Education Back to States

By SAM DILLON
With his declaration that he would waive the most contentious provisions of the Bush-era No Child Left Behind law, President Obama rerouted a decade of federal influence.
QUOTATION OF THE DAY
"It is a moment of truth, and my people are waiting to hear the answer of the world."
MAHMOUD ABBAS, the Palestinian leader, in a speech formally requesting full United Nations membership for his as yet undefined country

N.Y. / Region

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Don't Ask
Opinionator | The Thread

Don't Ask

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Thousands massed in cities in the West Bank on Friday to watch President Mahmoud Abbas formally announce the Palestinians' request for full membership in the United Nations.

Amid Statehood Bid, Tensions Simmer in West Bank

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More than a month ago, as Qaddafi forces retreated from their town, virtually all of Tawerga's estimated 30,000 residents fled the city, fearing wrath from their neighbors in Misurata.
U.S.

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A rash of thefts has law enforcement officials stumped. Among other challenges, the missing hogs are difficult to single out. "They all look alike," said a sheriff.

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Stance on Immigration May Hurt Perry Early On

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By BINYAMIN APPELBAUM and JACK EWING
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DealBook

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The changes in its revised S.E.C. filing, along with an executive's departure, are likely to spur additional questions about the online coupon company.

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By MARK VIERA
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Perugia, in the central Italian region of Umbria, is an enchanting hilltop city with a compact historic center that is a rambling maze of medieval streets.
Practical Traveler

Try a Private Jet, at Public Prices

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Though it's still not cheap, the cost of flying in a private jet may rival the price of first- and business-class tickets - and even, occasionally, coach.
EDITORIALS
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Editorial

State of the Republican Field

Logic and understanding are left behind in the latest presidential debate.
Editorial

Another Ridiculous Standoff

The standoff that is threatening a government shutdown this time is over money to refill the nation's disaster emergency fund.
OP-ED
Op-Ed Contributors

How Do You Say 'Economic Security'?

By THEODORE R. MARMOR and JERRY L. MASHAW
Where politicians once drew on the language of people, family and shared social concern, they now deploy the cold technical idiom of budgetary accounting.
Op-Ed Columnist

It Takes a Village

By CHARLES BLOW
A nurturing environment for the poor in West Harlem is helping to build more productive citizens.
Op-Ed Columnist

Perry's Bad Night

By GAIL COLLINS
It was impossible to watch this week's Republican debate without realizing that Rick Perry is not presidential timber, or even presidential polyurethane.
ON THIS DAY
On Sept. 24, 1996, the United States and the world's other major nuclear powers signed a treaty to end all testing and development of nuclear weapons.