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Eurozone Bailout Cost: $955 Billion

From The Daily Capitalist  
This was originally published at Midnight, May 10, but somehow disappeared.

“The message has gotten through: the euro zone will defend its money,” French Finance Minister Christine Lagarde told reporters in Brussels early today after the 14-hour meeting.

The eurozone, those countries that use the euro as their currency, is in serious trouble as evidenced by Sunday night's (here) announcement of a €750 billion bailout to defend the euro from tanking and taking down several sovereigns with it. Greece is only one problem.

From the Wall Street Journal:

The European Union agreed on an audacious €750 billion ($955 billion) bailout plan in an effort to stanch a burgeoning sovereign debt crisis that began in Greece but now threatens the stability of financial markets world-wide.

The money would be available to rescue euro-zone economies that get into financial troubles. The plan would consist of €440 billion of loans from euro-zone governments, €60 billion from an EU emergency fund, and €250 billion from the International Monetary Fund.

Immediately after the announcement, the European Central Bank said it is ready to buy euro-zone government and private bonds "to ensure depth and liquidity" in markets, and the U.S. Federal Reserve announced it would reopen swap lines with other central banks to make sure they had ample access to dollars. ...

From Bloomberg:

  “This is Shock and Awe, Part II and in 3-D,” Marco Annunziata, chief economist at UniCredit Group in London, said in an e-mailed note. “This truly is overwhelming force, and should be more than sufficient to stabilize markets in the near term, prevent panic and contain the risk of contagion.”

The world's monetary authorities are expecting a flight to from the dollar on Monday, and the Fed is ready to provide the dollars.

One could argue that the eurozone was founded on a central flaw: cheaters like Greece who spend beyond the debt limitations set by the ECB. Of course the main flaw is that none of the participant understand the flaw of spending beyond tax receipts. At some point the currency and the sovereign's bonds will be challenged because holders of sovereign debt fear sovereign default. It happens all the time and Greece has defaulted in the past. This time they can't print money to solve the problem.

Don't think it can't happen here. We just got a warning from the IMF.

Forbes publishes its annual Tax Misery & Reform Index which weighs the effect of taxation on economies. Many of the EC countries are right up there, including Greece (10th of about 70 countries). Which means it might be hard for them to raise and collect more taxes. It also looks as if they will have a difficult time cutting spending. By the way, depending on which state you are in, the U.S. is about 50th on the list. If you live in NYC you are 21st.

Mish has an excellent just published article on this topic you should read. He's expecting a short squeeze on Monday.

I agree with his conclusions: Good luck reforming Greece.

Disclosure: No positions