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 Europe Tries to Rescue Its Rescue

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Join date : 2010-11-28

PostSubject: Europe Tries to Rescue Its Rescue   Mon Nov 07, 2011 7:43 pm

Short on options and shorter on time, euro-zone finance ministers sought at a meeting here Monday to revitalize their sagging plans for a big bailout fund, even as the bloc's debt crisis reached new levels of panic

in Italy.

Ministers laid out two options for the fund Monday, and said they would cheap nfl jerseys present them soon to possible investors. They said talks on another option—

to use the International Monetary Fund to provide greater assistance—were continuing, but gave little indication of progress.

The euro zone's most pressing task is to assemble a bailout fund with sufficient capacity to forestall a potentially lethal cutoff of market financing to Italy, whose government-bond yields are climbing rapidly—

reflecting hesitance by investors to lend to a country with nearly €2 trillion ($2.77 trillion) in debt.

At a European Union summit late last month, EU leaders announced they intended to use leverage and insurance schemes to boost the capacity of the bailout fund, known as the European Financial Stability

Facility, or EFSF, in part by using investments from non-euro-zone countries. nfl jerseys cheap Several top figures said the new fund's capacity could reach

€1 trillion.

But at last week's summit of the Group of 20 industrial and developing nations, European leaders got little if any expression of firm interest from large, cash-rich developing nations like China. The U.S. objected

to some of the methods that involved the IMF, and Germany has shot down an idea to pool some of the euro-zone central banks' foreign reserves for rescue purposes.

That sent officials back to the drawing board. At Monday's meeting, officials wholesale soccer jerseys from the bailout fund presented a detailed outline

of two possible options for helping countries like Italy continue to sell bonds to markets. Italy will issue more than €300 billion in debt next year.

One involves setting funds aside so that Italy, for instance, could attach a piece of collateral as a sweetener for investors worried that they might suffer losses if they bought Italian bonds. Another option would

create a special investment vehicle to buy government bonds either directly from a troubled country or on secondary markets. The vehicle would raise money from "external capital sources," with the EFSF

making a junior investment in the vehicle that would absorb losses before the other investors get hit.

Both of the options had been previewed by EU officials last month, though naty Monday's outline provided more technical details.

Though Europe's ideas for bulking up the fund show "great creativity," Nomura analysts Nick Firoozye and Jens Sondergaard said in a research note, the options "don't move us much closer to generating a


The EFSF's chief executive, Klaus Regling, said euro-zone ministers would steelers jerseys cheap discuss the two options and hoped to

have one or both of them in place by December.

The big question, particularly for the second option, is where the money would come from. Italy has had to offer higher yields to entice investors, and on Monday even the EFSF—which is supposed to be the

rescuer—had to pay a premium to borrow to fund its own operations.

The EFSF sold a €3 billion bond Monday in order to finance part of its aid package cheap jerseys to Ireland. But it had to offer investors a premium

interest rate—more than one percentage point above its benchmark, compared with a spread of six one-hundredths of a point back in January when it sold its first bond.

Meanwhile, the European Central Bank is keeping Italian bond yields from spiraling out of control by buying bonds, something it is loath to do indefinitely.
Some governments have other ideas. Monday, Irish Finance Minister Michael Noonan said the "ECB has a role and must continue to play a role until the EFSF firewall is put in place, whenever that may be."
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