Today's Eurogroup meeting in Dublin shows the sad incoherence of the Cyprus rescue, says Pimco's...


Today's Eurogroup meeting in Dublin shows the sad incoherence of the Cyprus rescue, says Pimco's Mohamed El-Erian. By approving a €10B package, Europe has called on Cyprus to find an additional €6B euros to cover what is now a larger funding hole. It now needs to generate a total of €13B, which is a daunting sum for such a small country. The Troika, says El-Erian, has now botched a Cyprus rescue twice in less than a month. The implications cannot be good for Cyprus - nor for Europe as a whole.

Comments (24)
  • SoldHigh
    , contributor
    Comments (991) | Send Message
     
    The longer the Socialist EU experiment continues, the greater the boom when the stupid idea finally blows apart.

     

    The historical failure rate for socialism remains 100%.
    12 Apr 2013, 07:31 PM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3267) | Send Message
     
    Wrong, dead wrong.

     

    Look at the Bum, a self-styled epic social activist like the Cinderella! That my friend, is the trend, and going against the trend will get you crushed.

     

    Market is extremely bullish, discounting any negatives such as the $6T and growing deficit, the sequestration, the 88k 'new jobs', the dismal March retail sales, the Cyprus, Portugal, Ireland, Spain, Slovenia, France, Italy, UK negatives, while hyping and magnifying any slightest good news.

     

    Long live the wonder boy and the professor!

     

    Go all in now!
    12 Apr 2013, 08:59 PM Reply Like
  • RJKRJK
    , contributor
    Comments (187) | Send Message
     
    This may be the quote of the year, if not the decade or the century:
    "The historical failure rate for socialism remains 100%".
    13 Apr 2013, 09:16 PM Reply Like
  • Morrison Marketing
    , contributor
    Comments (107) | Send Message
     
    Moral Hazard?
    12 Apr 2013, 08:12 PM Reply Like
  • Bioalchemy
    , contributor
    Comments (175) | Send Message
     
    People did stupid things, people are doing stupid things, people will do stupid things/
    12 Apr 2013, 08:24 PM Reply Like
  • Bioalchemy
    , contributor
    Comments (175) | Send Message
     
    I guess the market will be shaken again on Monday.
    12 Apr 2013, 08:25 PM Reply Like
  • justaminute
    , contributor
    Comments (1340) | Send Message
     
    Who are they going to rob now?
    12 Apr 2013, 09:33 PM Reply Like
  • Bioalchemy
    , contributor
    Comments (175) | Send Message
     
    If the eurogroup think they can rob somebody again, then they can.
    12 Apr 2013, 09:36 PM Reply Like
  • Deja Vu
    , contributor
    Comments (1721) | Send Message
     
    You. And me. Via the IMF. And also Uncle Ben who will give them dollars for euros when no one else will accept their euros. He already did it once. Trust me, you and me will pay for the Europeans to lie around on beaches and in their welfare apartments, smoking, drinking wine and cursing America.
    13 Apr 2013, 12:25 PM Reply Like
  • justaminute
    , contributor
    Comments (1340) | Send Message
     
    Agreed, Deja Vu, that the US will and has been bailing out Europe.
    13 Apr 2013, 02:14 PM Reply Like
  • nemonemo
    , contributor
    Comments (334) | Send Message
     
    I guess you are taking Obama therapy.
    12 Apr 2013, 10:47 PM Reply Like
  • WisPokerGuy
    , contributor
    Comments (1210) | Send Message
     
    As long as the German economy remains strong - or maybe a better word is "solid" - the EU will continue to exist and the bailouts will roll onward. No matter how long it takes to reach a acceptable bailout, the process will continue. The fact is that Germany wants the EU to continue and they are what really matters. They may whine about what they have to do to keep the weak EU countries afloat, but in the end they will always do what is necessary. One of the key things in finance in my opinion is to "follow the money". And the fact remains that it is in Germany's best economic interests to keep the EU intact. That said, if that scenario ever does change - watch out because the house of cards will crash VERY quickly.
    12 Apr 2013, 11:12 PM Reply Like
  • Tack
    , contributor
    Comments (15895) | Send Message
     
    It does remain somewhat amazing how few seem to understand the situation in Europe.

     

    Those waiting breathlessly for implosion don't get it. Germany will never allow the EU to dissolve. There's simply too much benefit in it for them. The "worst-case scenario" is that the ECB/Germany finally throw in the towel on austerity and join the U.S. and Japan in monetary expansion, which, if and when it occurs, will mean that European equities will head to the moon, no doubt amplifying other global performance, as well.
    12 Apr 2013, 11:25 PM Reply Like
  • HPBunker
    , contributor
    Comments (217) | Send Message
     
    I don't buy that explanation. It may be "objectively" in the interest of Germany to preserve the EU at all costs (I doubt this as well but set that aside for a moment). However, Germany remains a democracy and Merkel is shortly up for reelection. In polls, the German people are very much opposed to further bailouts and (especially) anything that smacks of monetizing southern European debt. The people of Cyprus (and Greece, and Portugal) may similarly be coming to a point at which they would rather try life outside the eurozone since life within it is, frankly, awful.
    13 Apr 2013, 12:57 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3267) | Send Message
     
    Tack, to a certain extent your argument is valid. But it depends.

     

    The latest news is that the Troika would likely approve another trounche of bailout funds to Greece after conclusion of their recent on-site review visit.

     

    Get this right. Payments mean money wired from the Troika to the Greek government, then within seconds, would take a round trip being wired back to the loaning EU (mostly German) banks, as part of the interest due on the outstanding loans which are growing bigger and bigger accruing to the principal sum.

     

    So how long could the EU/Euro continue in this mode of operation?
    13 Apr 2013, 11:04 AM Reply Like
  • Tack
    , contributor
    Comments (15895) | Send Message
     
    Teut:

     

    "So how long could the EU/Euro continue in this mode of operation?"

     

    Great example. The answer is "forever."

     

    What you have outlined is no different from the fed buying back bad mortgage paper for U.S. banks. Central banks can recapitalize banks or smother debt, at their whim and without defined limits. It just takes monetary creation to do it.

     

    Ironically, the problem in Europe isn't too much monetary creation and a deflating currency value and accompanying systemic price inflation; it's the reverse. Europe has been so parsimonious in its bailouts that it merely treads water, but makes no real headway against the deflationary, economy-sapping forces at work throughout the continent. The recent episode, of even asking depositors to bear some of the bailout costs, reduces, not expands, the net monetary formation, which is the opposite of what they really need to do.

     

    Europe needs to discover -- and, will, either through enlightenment or brute force -- that they cannot escape their contraction by distributing newly-created ECB money through a "sippy straw." They need bold monetary recapitalization, as performed quite successfully in the U.S. and now embarked upon by Japan. Such an approach would see the euro fall in value, which it desperately needs to do to make European countries more competitive in export markets and which, by side effect, would make them more tempered in domestic consumption because of its elevated costs.

     

    Europe, presently, is trying to live and spend, as if it possessed the world's reserve currency, and the funds rushed back there to buy products and/or make local investments. Such, however, is not the case, so the effective monetary velocity stagnates, as Europe exports its euros and not much happens in the reverse direction. Europe needs the rest of the world to go on a European shopping spree, but that's only going to occur with a dramatically-cheaper euro.

     

    More monetary formation -- printing, as critics like to label it -- is both necessary and inevitable.
    13 Apr 2013, 11:53 AM Reply Like
  • Teutonic Knight
    , contributor
    Comments (3267) | Send Message
     
    Tack,

     

    You put it well; but I would only agree with you to a certain extent, not arguing for the last word.

     

    Recall the 1981-82 debacle of interest rate soaring to a peak of 18%? Printing is fine and great only to a point when inflation takes off. There is a thing called hyper-inflation!

     

    Thanks again, Tack, your persuasion power is admired!
    13 Apr 2013, 12:14 PM Reply Like
  • Tack
    , contributor
    Comments (15895) | Send Message
     
    Teut:

     

    Just a brief note:

     

    The inflation of the late '70's was occasioned by the coalescence of a number of specific factors (especially, Nixon wage-price controls), which resulted in a huge demand-supply gap and spiraling prices. It was not resultant of "printing."
    13 Apr 2013, 12:59 PM Reply Like
  • justaminute
    , contributor
    Comments (1340) | Send Message
     
    If your currency is so strong, why worry about exports? Go buy companies\assets in foreign markets. Adopt a US style corporate tax model and tax corporate profits where they are generated globally.
    13 Apr 2013, 02:20 PM Reply Like
  • evan.prospect
    , contributor
    Comments (702) | Send Message
     
    So why was gold down when Cyprus is that much closer to leaving the EU?
    12 Apr 2013, 11:35 PM Reply Like
  • Macro Investor
    , contributor
    Comments (8975) | Send Message
     
    Market manipulation, of course.
    13 Apr 2013, 12:56 AM Reply Like
  • HPBunker
    , contributor
    Comments (217) | Send Message
     
    Gold and silver sold off today as PM investors moved into tulip bulbs. If you haven't made the switch yet yourself, you had best hurry up. With the spring growing season upon us, bulb prices won't stay this low for long!
    13 Apr 2013, 12:58 AM Reply Like
  • justaminute
    , contributor
    Comments (1340) | Send Message
     
    Fear.
    13 Apr 2013, 01:09 AM Reply Like
  • SoldHigh
    , contributor
    Comments (991) | Send Message
     
    Klars, that's your retort?

     

    Try again when you're out of first grade.
    12 Apr 2013, 11:59 PM Reply Like
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