Tuesday, May 4, 2010

The Debts of the Spenders: Bond Vigilantes Call IMF's Bluff

After pledging over 100 billion euros to bail out Greece, the IMF and ECB thought that the Greek contagion was over. They could not be more wrong. CDS on the other non-Greek PIIGS countries (Portugal, Italy, Ireland, and Spain) have expanded wider in anticipation of further bailouts while the Euro continues to sink like a rock. Fiscal stability, it seems, is irrelevant as the market is pricing in further bailouts.

Of course, the lenders of last resort, the US Federal Reserve, is always ready to step into the pipeline as a guarantor with swap lines (a la 2008).

Some questions that need to be answered before the Americans can step in:

- Will European MPs (members of Parliament) approve the package?
- What is the final bailout sum?
- What form will the aid arrive in?
- Will the IMF Completely Change the Rulebook because of Europe?
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