rumours of a major plan to prop up the eurozone may have bolstered markets this morning, but there’s reason to believe that such a plan either does not currently exist or is not yet much more than an outline.A number of EU officials denied reports that leveraging of the European Financial Stability Facility was imminent or necessary. Among them, spokesman for the German Finance Ministry Martin Kotthaus and Dutch Prime Minister Mark Rutte have both independently made clear this morning that plans to leverage the EFSF are still very much up in the air.
While this could be expected — given the November 4 date attached to reports of this big new plan — such denials suggest that any plan will be controversial, and could take a long time to iron out.
On the other hand, German Chancellor Angela Merkel’s comments yesterday on erecting a “barrier” around Greece to prevent contagion from spreading in the event of a default imply that this big new eurozone bazooka might not be far from the truth. One of the primary facets of this plan to rescue the eurozone was the erection of a “firebreak” around Portugal, Ireland, and Greece via bank recapitalizations and EFSF support.
The head of Standard & Poor’s sovereign rating group, David Beers, added more flame to the fire this morning when he told Reuters that leveraging the EFSF could impact not only the triple-A rating of the European Central Bank, but the ratings of Germany and France as well.
While this announcement merely confirms what EU leaders have thought all along, it emphasises the difficulties that lie ahead for Germany and France in actually implementing a plan that could stave off financial crisis.
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