Yesterday Reuters reports Eurozone finance ministers finalised arrangements for a Special Purpose Vehicle (SPV) to raise up to 440 billion euros (363 billion pound) to lend to Eurozone countries that run into Greek-style payments problems. This SPV will be in market jargon a supranational company issuing its own bonds on the market like the European Investment Bank the EIB. The difference is the EIB lends on a large number of relatively small, cost benefit analysed, infrastructure projects The proposed EU SPV will lend huge amounts to one or two bankrupt countries.
This all looks very risky to me remembering Northern Wreck had its very own SPV for packaging and selling on its less than AAA mortgages to the less discriminating investment institutions. So who will lend to this EU SPV and who will give it, and its bonds, a credit rating the market will accept? M Sarkozy, let me have men around me who are short, perhaps but not likely to go down well with those in the market who walk tall and chew gum. So the Eurocrats have arranged that these SPV bonds will have a guarantee from individual Eurozone countries. Who will tell this to the German voters? Not Dr Frau Merkel I opine.
Politically it looks a bit like setting up a common EU Treasury under the nominal control of Barroso and van Rumpoy but the real bosses will be Merkel and Sarkozy. It must breach some of the Maastricht rules but rules are there for M Sarkozy to slither under. Merkel is now embarked on a 30bn € austerity package that will further increase the German balance of payment surplus with the PIGS and more important the USA. Ah Angela after Obama has finished kicking British Petroleum's ass I fear he will be aiming at your well padded posterior.
Meanwhile also in the Land of the Free,yesterday Ben Bernanke, FED chairman, said that "European leadership is strongly committed to doing whatever is necessary to preserve the euro, preserve the euro zone, preserve the European project, and avoid financial problems that would certainly arise,". Then in the true central bank two handed economist tradition he added, "investors were not yet convinced Europe's debt problems would be resolved", and said more European rescue money may be needed.
On US banking regulation reforms Bernanke said, "The acid test of the reform will be, will it control 'too big to fail?'" he said, pointing to measures including tougher bank capital rules, resolution authority to safely close failing firms, and "living wills" that require companies to plan for their own unwinding.
Oh Ben I like the bit about planning for their own unwinding. If you can convince the EU of this I promise I will never write another word of criticism of P. O.