EU: Contagion
December 1st, 2010Via: Bloomberg:
Investors’ no-confidence vote in the aid package for Ireland may force European policy makers to expand their arsenal to fight the debt crisis threatening to tear the euro apart.
Options outlined by economists at Societe Generale SA and Barclays Capital include: Boosting the 750 billion-euro ($975 billion) temporary rescue fund or turning it into an asset- buying program; cutting interest rates on bailout loans; issuing joint bonds for the 16 euro nations or flooding the economy with cash from the European Central Bank.
All would be unprecedented, and none of Europe’s political leaders — dominated by German Chancellor Angela Merkel — has indicated the steps are being considered. Earlier this year, they struggled to cobble together the measures that investors and economists now say are proving inadequate to safeguard the euro and keep speculators at bay.
“You’ve had repeated interventions, but the markets are still selling in response,” said Andrew Balls, London-based head of European portfolio management at Pacific Investment Management Co., which runs the world’s biggest bond fund. “Policy makers have to move beyond a country-by-country approach and think about the system-wide challenges.”
Investors punished Europe’s markets in the two days since Ireland became the second euro nation after Greece to get outside aid. Selling extended beyond “peripheral” countries including Portugal to core members of the euro area such as Italy and Belgium.
