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German and French officials have made strides at the World Bank/IMF Meetings this weekend towards outlining a huge new plan to save the euro, according to a Telegraph report.By building a “firebreak” around Greece, Ireland, and Portugal, bolstering banks, and expanding the European Financial Stability Facility, they think they can halt the spread of the sovereign debt crisis and restore confidence to the markets.
Reportedly, they’ll even have a solution by the G20 summit on November 4.
This plan consists of two major steps which — the report’s sources say — would need to be taken in conjunction:
– Tens of billions of euros would be used to recapitalize European banks. This would prevent contagion from spreading in the event of a Greek, Irish, or Portuguese default. We heard whispers about a plan like this last week.
– Leveraging the EFSF in order to expand the resources available to bolster Italy and Spain. U.S. Secretary Timothy Geithner proposed such a euroTALF-like solution earlier this month, and EU Economic and Monetary Affairs Commissioner Olli Rehn said eurozone leaders are considering this possibility this weekend. This piece of the plan assumes passage of the EFSF expansion proposed July 21.
By expanding existent programs rather than introducing deeper reforms, this plan sidesteps many of the reservations raised by core EU countries about bailing out profligate sovereigns in the periphery — in particular German fears that stronger EU governance could threaten domestic sovereignty. In this way at least, the plan could prove a success.
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