Greek Aid Mushrooms to €120 Billion, Spain Downgraded: More Eurozone Disasters Loom

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 |  Includes: DRR, ERE, ERO, EU, EUO, FXE, GLD, IAU, SGOL, ULE, URR
by: The Prudent Investor

Having repeatedly expressed concerns about the reliability of figures in the worst crisis the Eurozone has known in its brief history, news that stabilizing Greece will now require €120 billion - last week it was €80 billion, the week before €45 billion - over 3 years confirm my fears about the cluelessness and chaos in the Eurozone.

The Euro's tailspin accelerated to new one-year lows vs. Federal Reserve Notes (FRN) after Spain was downgraded a notch from AA+ to AA by Standard & Poor's. A German Green party MP said on Wednesday, IMF head Dominique Strauss Kahn had given a range of €100 billion to €120 billion, according to Reuters:

A decision on granting aid to Greece is needed quickly, the heads of the European Central Bank and IMF said on Wednesday, but did not confirm reports the bailout package could balloon to 120 billion euros over three years.

ECB and International Monetary Fund officials are in Athens negotiating a three-year fiscal authority plan as a condition for releasing emergency loans to debt-stricken Greece.

"It's impossible to give any details on what will be finally agreed," IMF Managing Director Dominique Strauss-Kahn told a news conference after talks with German politicians.

"We hope that the negotiation will not take too much time, that it can be done rather rapidly. But until this time it's impossible to give any details on what will be finally agreed in the future."

Earlier, opposition members of Germany's parliament said Strauss-Kahn had told them a eurozone/IMF aid package for Greece will be worth 100 to 120 billion euros over three years.

At the news conference, Strauss-Kahn declined to comment on these figures.

So the high priests of ever expanding credit don't want to talk anymore about absolute numbers. Maybe they fear that Goldman Sachs' expectations will become true.

Goldman Estimate for Greek Bailout Stands at €150 billion

Chief European Economist Erik F. Nielsen circulated this last Monday:

On my numbers, a one-year fully funded program needs to provide a minimum EUR 50-55 bn; an 18-months program will require some EUR 75 bn, and a 3-year program a minimum EUR 150 bn.

As there is no solution in sight to the main problem that Germany balks at handing out loans without austerity guarantees, as this would create a precedent for the next dominoes - Portugal, Ireland, Spain - that will fall in the greatest financial crisis the old continent has ever seen, we are about to witness more near-term weakness in the Euro.

Trying to find a solution where debtors pile up more debt in order to save even worse debtors is simply not a concept that will work. At least it never did in history, and this is a strong indicator for me that it will not be different this time.

All we know now is that we still don't have a clue what the final bailout sum for the whole Eurozone will be.

It may be premature to write an obituary for the Euro, though. Ideas to solve the crisis and avoid contagion in the Eurozone range from Germany leaving the Euro, making it a weak fiat currency, or Greek and other failures countries leaving the Eurozone in order to re-establish the Euro as a hard currency.

Remembering that Greece will not be the last stumbling stone for the Euro, I prefer to steer clear of more disasters that are certain to come. The dollar may indeed become a contrarian trade this year.

Oh, and if you are a Euro investor and want to make money, try gold. It just hit a new historic record of €890.

Disclosure: Long gold bullion, waiting for a EUR-USD correction to re-enter a short.