Europe’s grand gamble risks failure without ECB

Thursday, October 27, 2011
By Paul Martin

Europe’s “Grand Plan” to save monetary union is, in broad terms, a settled matter, even if the usual theatrics were still dragging on into the small hours of the Belgian night.

By Ambrose Evans-Pritchard
Telegraph.co.uk
26 Oct 2011

Whether it proves any more successful than past efforts over the past two years is far from clear. The package is a huge gamble. If it goes wrong, it may accelerate contagion to core Europe, hastening the denouement so feared by EU leaders.

The EU’s €440bn bail-out fund (EFSF) will be leveraged “several fold” – perhaps to €1 trillion – chiefly by insuring the first 20pc loss of new bonds by Italy, Spain and other debtors. This creates a two-tier market, instantly downgrading old debt to lower status.

The plan will “probably” be buttressed by an off-books fund that uses EFSF seed money to rope in the International Monetary Fund, China, Japan and Russia.

The Rest…HERE

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