The Full Math Behind The “Expanded” European Bailout Fund
by Tyler Durden
As noted earlier, futures this morning are higher despite a plethora of economic misses (and despite 57% of March US data missing as per DB), simply on regurgitated headlines of an “expanded” European €7/800 billion bailout fund. There is one problem with this: the headlines are all wrong, as none apparently have taken the time to do the math. Which, courtesy of think tank OpenEurope, is as follows: “The real amount of cash that is still available to back stop struggling states, should it come to that, is only around €500bn.” Of course, that would hardly be headline inspiring: recall that that is simply the full size of the ESM as is. But even that number will hardly ever be attained, and the ECB will have to step in long before Europe needs anything close to a full drawdown: “The problem here is that if it’s too big and terrible to ever be used, it’s likely that it won’t ever be used. Even jittery markets will be able to figure out that a large fund which would damage French and German credit ratings if ever extended will never be fully tapped. So clearly some circular logic at play. And let’s not forget that it’s still far too small to save Italy and Spain should if worse come to worse.” Circular logic? Check. Another check kiting scheme? Check. Spain and Italy still out in the cold? Check. Conclusion -> buy EURUSD, and thus the ES, which has now recoupled with every uptick in the pair, but not downtick.
From Open Europe:
Who’s Afraid Of The Big Bad Bailout Fund?