Reply #7: Why an IMF rescue plan for Italy won't work

[xchrom]

http://www.guardian.co.uk/business/nils-pratley-on-finance/2011/nov/30/imf-rescue-plan-italy?intcmp=239

Italy's bond yields are still climbing this morning, to 7.3% on 10-year paper. This should not be a surprise: the latest attempt to soup up the grand rescue fund, the European Financial Stability Facility, looks like an attempt to revive a parrot that remains resolutely dead.

The finance ministers in Brussels have two ideas for resuscitation. The first would involve the EFSF insuring against loss the first 20% to 30% of new bond issues for members states requiring assistance. The second would see the creation of "one or more co-investment funds" that would purchase bonds at issue or in the market (ie after issue).

There is a big problem with both ideas: it is almost impossible to imagine that enough cash could be raised to turn the tide in the €1.9tn (£1.62tn) Italian debt market. The EFSF started with €440bn of guarantees from member states but this resource has already been depleted to €250bn by the Greek bailout and the need to participate in bank recapitalisations. Three times leverage via insurance of co-investment would achieve €750bn – but that's only enough to finance Italy for a couple of years, even assuming funds are not diverted elsewhere in the interim. The imagined rush of co-investors could be a trickle.




*** i can't swear this is from today -- but i think it's very recent.