Europe’s grand gamble risks failure without ECB
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
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.