Countries Outside the Eurozone want those Inside to Increase their Firewall before they Commit to more IMF Funding

Posted by PITHOCRATES - January 29th, 2012

Week in Review

The road to save the Eurozone must pass through a firewall.  A big pile of money that can rush in and stop another crisis from taking hold and spreading.  Money that will just sit there.  And because it’s there it will give everyone confidence that the Eurozone is okay.  Because if something happens again there’s that big pile of money just sitting there to help stop anything bad from happening.

It will be there, say, in the rare chance that a member state has another debt crisis and can’t raise money in the bond markets.  This money will address that crisis.  Keeping the state and the banking system calm.  And liquid.

It is reassuring what a big pile of money can do.  Just sitting there.  If they just let it sit there.  Which is easier said than done.  In fact, this was very difficult to do in many pension funds.  All that money just sitting there.  Doing nothing.  While budget deficits were growing.  So they borrowed a little every now and then.  Until those funds became dangerously underfunded.  So setting up this firewall may be easier said than done.  Because all of the Eurozone member states have deficits.  And large debts.  They may be a little skittish putting in more money to try and save a member state.  Especially if that state is beyond saving (see IMF leads global push for euro zone to boost firewall by Paul Carrel and Emma Thomasson, Reuters, posted 1/28/2012 on Yahoo! News).

Countries beyond the 17-country bloc want to see its members stump up more money before they commit additional resources to the IMF, which this month requested an additional 500 billion euros ($650 billion) in funding…

In a carefully worded keynote address, Merkel suggested doubling or even tripling the size of the fund may convince markets for a time, but warned that if Germany made a promise that could not be kept, “then Europe is really vulnerable.”

On Friday, U.S. Treasury Secretary Timothy Geithner pressed Europe to make a “bigger commitment” to boosting its firewall.

Two bankers who attended meetings with Geithner at the Forum said on Friday the United States was looking for the euro zone to roughly double the size of its firewall to 1.5 trillion euros. There was no immediate comment from the U.S. Treasury.

Some countries want a free pass on their irresponsible spending ways.  They want help.  But they want other people to pay for it.  While other countries have been carrying a much larger weight than others.  Like Germany.  The richest economy in the Eurozone.  Whose taxpayers may be growing tired of being the go-to country in times of bailouts.  And the U.S. wants the Europeans to spend more to save the Eurozone.  About twice as much.  Making the price of membership so high some may just consider leaving.

“The euro zone is a slow-motion train wreck,” said economist Nouriel Roubini, made famous by predictions of the 2008-09 global banking crisis.

He expected Greece, and possibly Portugal, to exit the bloc within the next 12 months and believed there is a 50 percent chance of the bloc breaking up completely in the next 3-5 years.

Hong Kong’s Chief Executive, Donald Tsang, said no matter how strong the euro zone’s firewall is, the market will look at the nature of the economies it is protecting.

“If it is protecting insolvent economies…no matter how strong the firewall is, it won’t survive,” he said..

So it may not help no matter how big the firewall is.  Because most countries don’t want to be told what to do.  And won’t change the way they run their countries.  And without fixing the underlying problems (excessive government spending) there’s no saving the Eurozone no matter the size of the firewall.


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