The IMF Alone Cannot Save Europe

by: Sammy Pollack

The IMF cannot save Europe alone. Even if the rumor of an IMF led bailout of Italy is true, this will not be enough to save Europe.

Policy makers are just now reacting to the market's previous move. The IMF led bailout of Italy is a response to the market, making it impossible for Italy to borrow money at cheap rates. The market has already moved on to France and Germany. With French yields spiking, and Germany unable to sell bonds, the crisis has moved beyond Italy.

From the very beginning of the crisis, the authorities have been behind the problem, not in front of it. The IMF loan to Italy would be yet another reactive move. What the authorities need to do is get ahead of the markets.

Here are some policies that could help bring the crisis under control:
#1. Place banks under ECB supervision and guarantee all bank deposits across Europe. This policy will prevent potential bank runs that are destined to occur.
#2. A closer fiscal union in the EMU with issuance of Eurobonds as a long term goal
#3. Increased ECB bond purchases while Eurobond details are debated
#4. Massive capital injections into the major European banks
#5. IMF assistance (ok, this might actually happen)

With the implementation of ALL of these steps it is possible that the crisis may come under control, but simply relying on the IMF to end the crisis is not a good idea. The IMF is not powerful enough to bring the crisis under control. It should be noted that no one institution is powerful enough to bring the crisis under control, rather, a combination of actions is what is needed. We need Eurobonds, ECB bond buying, bank capital injections, and IMF help to solve the crisis.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.