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Reply #7: Why an IMF rescue plan for Italy won't work [View All]

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xchrom Donating Member (1000+ posts) Send PM | Profile | Ignore Wed Nov-30-11 07:36 AM
Response to Reply #6
7. Why an IMF rescue plan for Italy won't work

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.
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