Someone’s spilling the beans.Irish Prime Minister Enda Kenny just told Reuters his thoughts on the European Financial Stability Facility, the fund responsible for bailing out Portugal, Ireland, and Greece and keeping contagion from spreading.
It’s not going to work—at least not as it stands right now.
Specifically, he said the October 26 agreement to leverage the fund to about $1.4 trillion is “insufficient” and has not succeeded in returning confidence to the markets.
[UPDATE: Greek PM Lucas Papademos is also saying that more radical interventions will be needed in order to stem the crisis.]
These statements echo what the majority of economists and analysts have been saying for months.
Here are some reasons they’ve been citing on this assertion:
– $1.4 trillion is just not enough to build an adequate firewall between Italy and Spain, and certainly not enough to bail out Italy.
– Insuring 20-30% of losses on sovereign bonds would not convince investors to purchase them.
– If investors are going to lose 70-80% of the value of their bond holdings, that’s really not much better than default anyway.
– There are major doubts that any countries, investors, or sovereign wealth funds would actually buy bonds issued to fund the leverage plan.
The markets have long known the plan was a lot of hot air, but will other EU leaders start to follow Kenny?