Monday, September 3, 2012

End to the Euro Crisis, Maybe?

2012 seems to be the make or break year of the Eurozone. The dominoes of the current set up started to fall. Although it was a battle every step of the way, when push came to shove the countries of the  Eurozone came together to do what needed to be done in order to save the whole continent from collapse. I believe they finally have found the exit to the crisis, but it could be just another false start.

Here is the year in review:

February - There was another bailout for Greece:

"Euro zone finance ministers agreed a 130-billion-euro ($172 billion) rescue for Greece on Tuesday to avert an imminent chaotic default after forcing Athens to commit to unpopular cuts and private bondholders to take bigger losses."

March - Then a permanent bailout fund was established:

"Seeking to reaffirm their determination to put the two-year-old euro crisis behind them, European finance ministers agreed Friday to create a permanent bailout fund for the euro zone with an effective firepower of almost €800 billion."

May -Then a bailout for Portugal :

"Portugal's caretaker prime minister Jose Socrates says he has reached agreement on a bail-out from the EU and the International Monetary Fund. In a televised statement, Mr Socrates said the three-year loan was a "good agreement that defends Portugal". His office said Portugal would be asking for financial assistance worth 78bn euros ($116bn; £70bn)."

June - Followed by more bailouts (Cyprus and Ireland):

"The small island state of Cyprus formally became the fifth country to request aid from Europe's bailout fund Monday as it worked to shore up a banking system hit hard by the debt crisis in neighboring Greece. The request, which had been expected, comes after weeks of unsuccessful negotiations with Russia for a loan similar to a €2.5 billion ($3.14 billion) one that kept it afloat at the end of last year."

"Ireland’s largest 10 consumer lenders, including four overseas-owned banks, lost around 117.8 billion euros on soured loans in the four years through December, according to data compiled by Bloomberg News. Deutsche Bank today downgraded Bank of Ireland (BKIR), the only Irish lender guaranteed in 2008 that has avoided state control, to sell from buy."

July - And even more bailouts. For Spain this time:

"The bailout will pump up to €100 billion euros ($123 billion) into ailing Spanish banks and will aim to restore the country's financial sector.... Spain's government said it expects the economy to remain in recession next year as it steps up austerity measures."

August - Then there was the proposal for the ECB to buy sovereign debt directly from countries if interest rates for that country hit a certain level - basically creating a maximum cap:

"The European Central Bank is considering setting limits on yields of euro area sovereign debt by pledging unlimited bond purchases, Germany’s Spiegel magazine reported without saying where it obtained the information. The policy will be decided at the September meeting of the ECB’s governing council, Spiegel said. The Frankfurt-based central bank would immediately publish bond purchases after making them."

September - Now there is a proposal for the ECB to take control of the entire banking sector of Europe:

"The European Central Bank would be given sweeping authority over all 6,000 eurozone banks under a plan being drawn up by the European Commission ... The plan, agreed at a meeting this week between top aides to José Manuel Barroso, commission president, and Michel Barnier, the EU’s senior financial regulator, would strip existing national supervisors of almost all authority to shut down or restructure their countries’ failing banks, giving those powers to Frankfurt."

I have confidence that the European Union is finally making the fundamental (austerity) and structural (banking union) changes necessary to finally end the crisis. Germany and the ECB are finally coming on board, which means monetary easing might be on the way. With any luck, this whole episode will be over soon.

Next step, the beginning of the recovery...

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