January 23, 2011

Debt buy-back proposals are the start of the end of the Euro

BERLIN, GERMANY - DECEMBER 15:  In this photo ...Image by Getty Images via @daylife
The latest discussions on the Euro front are showing more and more EU and German officials invoking Greece to buy back their debt with money provided by European Structural Funds in order to unload the EU of the burden of keeping afloat the peripheral zombie countries.
It is certainly a good thing for those countries who are at the moment paying the price to sustain the weak Club Med but certainly would mean that if they should succeed they would be able to unload any responsibility in preserving the Euro area and it would make much easier for a single country to exit/be thrown out the Euro if things get sour.
We would rightfully argue that Greece or any other PIIGS would be crazy to buy back their toxic debts and unload the EU creditors, if not for no other reason than getting quick and cheap cash flow, but still we don't know yet how if push come to shovel this buy-back will be set and if forced mechanisms will be implemented by the EU. The reality is the everyone is perfectly aware that the time-bomb is ticking and that all the recent measures have only bought some limited time before a default on the Euro periphery will be inevitable. They are already planning the next move and the recent interviews are functional in defining what will happen when the crisis will reach Spain and Italy, it is no longer a matter of if but when the Euro will start losing pieces. The exit strategy is taking shape these weeks and it will pave the road to the European Council meeting in March.
Reuters wrote the following yesterday:

Der Spiegel magazine also reported in an unsourced reported that the idea of a buy-back, which it said was first raised by the European rescue fund's chief Klaus Regling, had been greeted with sympathy by euro zone finance ministers this week.

Without citing any sources, Der Spiegel said Regling's suggestion stood good chances of becoming reality.

"The measure has good prospects of being signed off as part of a comprehensive package to stabilize the euro zone at the European Council in March," it said in a pre-publication release.

It also cited an unnamed high-ranking German finance ministry source as saying this was a good idea, running counter to official German denials this week.


It is quite clear from this that any alternative solutions like the proposed creation of Euro Bonds or the devaluation of the Euro to support the weakest countries are being quietly ignored, the consequences will be the condemnation of the Euro periphery to decades of stagnant growth and increasing misery while at the same time either creating a two speed Euro or simply expelling from it the debt ridden countries who cannot afford the membership bill.
The next two months will be decisive to the future of Europe and to its very existence.
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