The Copenhagen meeting degenerated into acrimony and some chaos when the Austrian finance minister, Maria Fekter, upstaged the eurozone leaders by first announcing an €800bn firewall. The deal agreed on Friday conformed to German prescriptions for a minimalist bailout fund, a recipe that the European commission in advance described as inadequate to the challenges confronting the euro. Ministers endeavored to impress the bond markets, the Americans, and the Chinese, trumpeting the agreement as worth "more than a trillion dollars" in the hope that this will press the big IMF donors into doubling the monetary fund's reserves to a similar figure next month. "We are now in a strong position for discussion on the IMF in April. It is a good signal," said the French finance minister, Francois Baroin. "All together the euro area is mobilising an overall firewall of approximately €800 bn, more than $1tn," said a Eurogroup statement. Jena-Claude Juncker, the veteran Luxembourg prime minister who has been chairing the eurogroup for eight years and whose term expires in June, threw a wobbly and abruptly cancelled a media conference at which he was to unveil the decisions. The new money comes in the form of the European Stability Mechanism (ESM), the permanent eurozone bailout kitty and embryonic European Monetary Fund which starts in July. The ESM's launch has already been brought forward and ministers on Friday also agreed to speed up the process of paid-in capital to get the fund fully operational within two years. Its lending capacity was capped at €500bn, as has long been planned. Friday's agreement represented yet another win in the long-running euro saga for Berlin in dictating the terms of the eurozone's response to the crisis. France and others had argued for a trillion-euro firewall. Germany insisted the permanent fund should not exceed €500bn and on Monday conceded the €200bn of current bailouts could run concurrently. "The euro area made substantial progress over the past 18 months to address the challenges stemming from the sovereign debt crisis," the ministers declared. "Important improvements were made to improve the governance of the euro area … robust firewalls have been established. This comprehensive strategy has paid off." I may have missed a statement somewhere, but I'm not aware of either Barroso or Rehn saying any such thing - the calls for an (even) bigger firewall, at €1 trillion or so, were from the head of the OECD and the French Prime Minister Barroin, I think. That's not the way the German press reported the concession, about ESM and EFSF to run concurrently, that Germany made on Monday. Lots of talk about "climb-downs" and "bowing to unprecedented international pressure" and so on.Mircea Halaciuga, Esq.
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bank governors in Copenhagen.
"It is a recognition that, in general, for the world economy, the IMF needs to have more resources if we think ... what in a future emergency situation could be the needs of the IMF to fulfill its role anywhere in the world," he said.
Finance ministers from the world's 20 biggest developing and developed economies, the G20, meet in April in Washington to discuss an increase of resources for the IMF.
"That is very important to understand - this linkage with the European situation has in my view been overplayed and exaggerated by some," Mr Constancio said.
Eurozone finance ministers raised the combined lending capacity of their two bailout funds to €700bn from €500bn"
But the actual hard cash sitting in the combined funds and ready to be lent as needed is now zero or negative, and it would only rise towards €80 billion over two years as the eurozone governments handed over the "paid-in capital" for the ESM.
So in practice their nominal "combined lending capacity" could run up against one of several lower limits: the willingness of recipients to accept their bonds instead of cash, which is how the EFSF paid the "sweetener" and accrued interest to holders of Greek government bonds:
http://www.efsf.europa.eu/atta...
or the willingness of global investors to buy their bonds in sufficient volume and as quickly as the money would be needed, or the willingness of eurozone governments to supply the rest of the capital to the ESM when it was needed, or the ability of those governments to borrow that money when the ESM called for it.
It's only necessary to take a pessimistic view, not a wildly unrealistic view, to question whether these plans are indeed "absolutely credible":
http://www.goldalert.com/2012/...
"So at some point in the near future there will be about €40 billion of money sitting in the ESM and a bunch of promises from countries failing to live up to existing debt obligations - and that is the big firewall? The correlation between who is providing the guarantees and who will need them cannot be ignored. This new €500 billion number doesn’t exist; it’s not just meaningless, it’s non-existent if Italy or Spain needs money."
That's unless it can be assumed that if necessary the ECB would just print whatever money was needed, and if that's the case then it would be simpler to say that rather than faff around with ever more complicated financial engineering to erect a facade and pretend that it's a "firewall".
There is a spanner in the works:
Fourth BRICS Summit - Delhi Declaration
http://www.mea.gov.in/mystart....
"We see an urgent need to implement, as agreed, the 2010 Governance and Quota Reform before the 2012 IMF/World Bank Annual Meeting, as well as the comprehensive review of the quota formula to better reflect economic weights and enhance the voice and representation of emerging market and developing countries by January 2013,"
"We stress that the ongoing effort to increase the lending capacity of the IMF will only be successful if there is confidence that the entire membership of the institution is truly committed to implement the 2010 Reform faithfully."
The way I understand it, the BRICS want a simple exchange.
Our money in exchange for Europe to give up control over the IMF, i.e. the quota reform, to reform the quota that decides what percentage of votes each country has within the IMF.
So, is Europe willing to give up control over the IMF, in exchange to receiving more money from the IMF?
But it appears clear that the BRICs will block any increase in IMF funding, unless they get what they want.
Captain. You have summarised the failings of democracy.
Imagine a bankrupt country (take your pick there are plenty out there). The electorate want increased government spending (take your pick, increased public spending or benefits or reduced taxes). The majority (or even a large voting block) demand it.
It may be logical, but is it correct or sustainable?
The problem with the "unsupportable wellfare state" is that it is not so much a socialistic desease but rather a side-effect of the global financial Ponzi-scheme (they simply have to let everybody in and make them consume, otherwise the scheme will collapse due to population shrinking), and that the elites that own the media own some 70-90pc of the nations wealth too - maybe thats why all the talk is about the wellfare state and not one word about the distribution of wealth?
The deal agreed on Friday conformed to German prescriptions for a minimalist bailout fund, a recipe that the European commission in advance described as inadequate to the challenges confronting the euro
I may have missed a statement somewhere, but I'm not aware of either Barroso or Rehn saying any such thing.
the calls for an (even) bigger firewall, at €1 trillion or so, were from the head of the OECD and the French Prime Minister Barroin, I think.
Friday's agreement represented yet another win in the long-running euro saga for Berlin in dictating the terms of the eurozone's response to the crisis
That's not the way the german press reported the concession, about ESM and EFSF to run concurrently, that germany made on monday. Lots of talk about "climb-downs" and "bowing to unprecedented international pressure" and so on.
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