Here we go again. Another report, very late in the U.S. trading session attributed to Nikkei News Service that the G-20 will 'participate' in the Euro 'fix' and it will all be implemented by the IMF. A number of weeks ago in a piece on Seeking Alpha, and throughout my commentary, I have postulated that this very solution would come to the fore.
I believe it now, more than ever. Particularly on the heels of a denial. But as CNBC reported, 'consideration' may indeed be in the works. This time they led with the G-20 being the impetus; I guess folks have finally figured out that the G-20 is the preponderant capitalization source for any and all IMF initiatives.
The figure of a support facility of approximating 600 million euro sounds very strangely reminiscent of the figure bandied about a few weeks ago, as it solely pertained to an Italian/Spanish 'support' instrument. I reported on this sometime ago in another piece and on the heels of that denial.
I began to believe the solution to the Eurozone Crisis had to find its way through the G-20/IMF, eventually, sometime in mid-summer. For me, it was purely a matter of the overwhelming magnitude of the math, the inadequacy of the real mechanisms available in the European institutions as they presently exist, in combination with the foot-dragging, lack of willingness and the obstinacy of the Germans, embodied in Ms. Merkel and Mr. Schaeuble's refusal to acknowledge the inherent imbalances in the Euro but very favorable to Germany, from Euro Day One.
This cobbled together solution, to be announced in totality on Friday, may now just have some of the strength of numbers needed to be meaningful to the ultimate required repairs .
However, significant questions remain:
- What to do about Greece, and the fact they no longer want to be in the deal previously agreed to, namely the charade of the 'voluntary' write-down?
- What about bank re-capitalizations? They remain completely up in the air, although we must hear something of this aspect on Friday.
- And the BIG ONE and a half; exactly what are the amendments offered and by what process will approvals be gained? And as an related aside, will approval be incumbent on only "The EZ 17", or on the full "EU 27", or a combination?
- Timeframes are among many other questions yet to be addressed.
It seems obvious that a number of 600 billion euro could be accomplished, without the many political/authorization processes a larger commitment would entail. G-20 countries, like the U.S., facing highly contentious and visible election cycles, could scuttle the best-laid plans. The markets certainly do not need those pesky complications at this critical juncture.
Perhaps the visit of Secretary Geithner and the President's allusions in Cannes a few weeks ago, to IMF funding by G-20, are further proof there is substance to the rumors. We do not have long to wait now.
I continue to maintain the entire exercise will not work, in the course of the medium, or longer terms.
Simply put: There is too much debt in Europe. It is not sustainable. Austerity never leads to meaningful growth in the near to medium terms, precisely what the Eurozone needs. Therefore, I firmly believe the Euro, as we now know it, will be history.
When is the much tougher question.