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Anorak | This latest euro bailout won’t work either – here’s why

This latest euro bailout won’t work either – here’s why

by | 4th, July 2012

THE last couple of years have been something of a sad sight: we keep seeing the EU stumbling from one attempt at correcting the euro mess to another without ever quite reaching the point where they’ve solved it. This is essentially because there are only three solutions: break up, inflation or fiscal union (also known as Germany paying for Spain, Italy, Portugal and Greece). None of those options appeals to enough people to be enacted.

Thus we have the continuing series of sttempting to solve the problem without doing any of those three. The latest is the ESM, a €500 billion fund which will lend to countries in trouble. The problem here is :

Assuming there are no voting hiccups in getting the ESM to buy sovereign bonds on the secondary market…

Some arguments that bailout fund’s limited size means it will eventually hit a floor which will ultimately make bond market liquidity worse.

Quite, the fund is too small for the job that it has been given.

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Posted: 4th, July 2012 | In: Money Comment | Follow the Comments on our RSS feed: RSS 2.0 | TrackBack | Permalink