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Euro Declines, After $1 Trillion ‘Bailout’

From a seemingly flummoxed Reuters:

Excitement over $1 trillion euro plan fades, euro slips

By Andreas Rinke And George Matlock

May 11, 2010

BERLIN/LONDON (Reuters) – Germany’s cabinet approved the biggest national contribution to a $1 trillion emergency rescue package intended to stabilize the euro as global markets sobered up after Monday’s euphoria.

Relief at the European Union’s bold move to restore investor confidence gave way on Tuesday to doubts about whether weaker euro zone economies can meet their part of the bargain and deliver drastic debt cuts, driving the euro and stocks lower.

The 16-nation single currency, which surged above $1.30 early on Monday, slipped below $1.27 as traders weighed debt worries and a perceived blow to the European Central Bank’s independence in its weekend policy reversal to start buying euro zone government bonds.

The emergency plan — the biggest since G20 leaders threw money at the global economy following the collapse of Lehman Brothers in 2008 — wowed markets with its sheer size and sparked a spectacular rally in world stocks and the euro.

Yet stock and bond markets turned cautious when they reopened for business in Asia and Europe on Tuesday, with investors concerned that the plan was not a long-term solution to problems plaguing the 11-year old single currency area.

EU Economic and Monetary Affairs Commissioner Olli Rehn raised pressure on Italy, which has the euro zone’s highest debt after Greece as a proportion of national output, and France, which has a heavy structural budget deficit, to do more quickly to improve their public finances

Conservative newspapers and the Social Democratic opposition reflected public anger and fears over the latest bailout, warning that Berlin could not trust its euro zone partners and may end up having to foot the entire bill.

"What happens if other countries which get aid from the package drop out? Will the German share increase then?" SPD parliamentary whip Thomas Oppermann asked on ARD television.

The mass-circulation Bild daily complained in a front-page headline: "We are Europe’s fools again."

"Angela Merkel, the Iron Chancellor, has rolled over and we are being taken to the cleaners," it compained [sic] in an editorial…

Moody’s credit ratings agency warned it might downgrade Portugal’s debt rating and further cut Greece’s to junk status, noting the contagion effect of Greece’s crisis on other euro zone members.

"Contagion has spread from Greece — historically a weaker credit in the context of the euro zone — to sovereigns with stronger credit metrics like Portugal, Ireland and Spain," Moody’s said

We suspect that the “unexpected” size of this package may have scared the EU investors, once they had some time to think about it.

After all, it’s almost ten times the size that had previously been discussed. Which would suggest that things are far worse than the powers that be have been letting on.

This article was posted by Steve on Tuesday, May 11th, 2010. Comments are currently closed.

7 Responses to “Euro Declines, After $1 Trillion ‘Bailout’”

  1. Right of the People says:

    That’s the problem with having a common currency across so many countries. In the past when something like this happened, the Greeks could have devalued the Drachma and pumped up their exports to help right the ship. Now with a common currency, that option is not available since to devalue the Euro would damage most of the other countries that still have their heads above water. England was wise to hold onto the pound.

    Lets hope this is a lesson to those who are pushing for a world government. Maybe they should read the book of Revelations.

    • AcornsRNutz says:

      “Lets hope this is a lesson to those who are pushing for a world government. Maybe they should read the book of Revelations.”

      Oh, it has been a lesson to them, which is exactly why they will redouble their efforts now. This is what they want. And I get a kick out of the statement that the euro “surged” to $1.30. When it was new it was worth nearly 2 bucks. Darn skippy the brits were smart to keep the pound. It may wind up being one of the most valuable currencies any of our allies use within a few months.

    • Douglas says:

      Yeah, well, we’re in the same boat when California defaults. The the size of the US and EU economies are about the same. California is much bigger than Greece though.

    • Petronius says:

      Agree that the Brits were smart to keep the pound. Unfortunately, however, the Labour government wasted that opportunity by indulging in those old Liberal favorites of excess spending, mass immigration, and a no-growth economy burdened by high taxes. As a result, the British pound has troubles of its own, down to around $1.48 and falling.

      UK’s deficit to GDP ratio (12.6%) is third worst in the world, second to Greece, and worse even than Portugal, Ireland, and Spain. Britain is coming off 13 years of Labour mismanagement. Last week’s election failed to reverse the leftist trend, as the Conservatives got only 37% of the vote, resulting in a hung Parliament that may easily produce a few more disastrous years of socialist government.

      The most valuable money assets today are gold, silver, and the other precious metals. Investors everywhere are becoming wary. We may be on the verge of a global stampede out of paper money into gold and silver. As for foreign currencies, the Canadian dollar and Australian dollar remain steady, followed by the Swiss franc and possibly the yen.

      The US dollar has gained some temporary strength as a safe haven as a result of the Greek debt crisis and falling euro, but the long term trend remains against the US dollar due to the government’s fiscal irresponsibility and radical anti-business, anti-capitalist agenda.

  2. proreason says:

    Within 2 years – Obamy will demand a world government.

    • MinnesotaRush says:

      He already declared his world citizenship in Oslo, as I recall.

      Need to do that to run for the world top office, ay.

  3. tranquil.night says:

    “After all, it’s almost ten times the size that had previously been discussed.”

    Correct, and I believe almost 2x the yearly budget of the EU. “Shock and awe” was a fairly appropriate name for that bailout announcement yesterday. Unfortunately, all I think it meant though was that we’ve tied our fate to Europe with a running knot – forming what’s otherwise known as our own NOOSE.

    Yes, investors are realizing that we just deeemed the EU too big to fail and bailed them out for or our own economic security. Only problem is we (the private sector) have little security anymore.. and even less money. I think it’s a worldwide redistribution of American taxes to buy Barack a few more months of perceived stability and recovery until the election, that’s all!

    This move I think once again puts on full display both the dangerous naivety of Bam’s understanding of real economics and Germany’s helplessness to tackle the real sovereign debt situation facing the Euro. Market-makers like Soros and Goldman helped the nations mask their real debt obligations, and now are reaping the fruit of this downward spiral. On this one I think Obamy seriously was a pawn, devoted to the Keynesian kool-aid; simply because he displays so little understanding and even less interest in economic cause and effect.

    I can’t ignore the noose metaphor here though. They’re using statism/socialism to “hang” capitalism.

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