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TARP for EU Countries!

|Includes: ProShares UltraShort Euro ETF (EUO), GLD

In their latest effort to deal with the Greek Debt crisis, the EU is trying to come up with a giant fund to be used to aid countries with sovereign debt troubles (Greece, and presumably others that will follow).

You can think of this as a TARP for EU countries rather than US banks.

However, the promoters of this wonderful plan are running into a bit of a legal problem[1]. Apparently, when the EC initially setup its treaties, it had the foresight to see the exact conditions we are experiencing and forbid the European Central Bank to bail out the countries that couldn't control their budget

I'm very impressed with whomever built that protection into the treaties! It makes sense -- why should good and solid budget-behaving countries suffer and bailout countries that spend like there is no tomorrow.

Unfortunately they want to completely throw out their treaties and bailout these countries that run perpetual budget deficits. If passed, this will have severalunintended consequences:

  1. Countries being bailed out will lose any immediate incentive to get their financial house in order. Those in political control of these countries will inevitably put on a good public show by starting many many "austerity programs", but the actual financial cleanup will be left for the next set of politicians. After all, if there is enough bailout money to get through this election term, why would any politician actually implement programs that would piss off constituents?
  2. Countries providing the bailout financing will be financially weakened, and will, in time, end up footing a much larger bill. Time and time again, history has shown that initial estimates of bailout costs have been completely wrong and the actual costs have been orders of magnitude larger. The size of this fund will grow over time and the strong countries providing the capital will continue to throw good money after bad and will ultimately be severely weakened.
  3. Any notion of national responsibility (governments taking responsibility for their own actions) will be instantly null and void as soon as this fund is implemented. The whole idea of this fund is to share the burden of costs across all EU members. The Future Actions Of EU Member Countries Will Be Guided By This Underlying Assumption Of Shared Sacrifice Over Personal Responsibility!

My only question is: Who is going to bail the USA out when it finally gets to be our turn? If we're helping the EU bailout other EU countries via the IMF, will Asian or South American countries do the same for the USA?

"The EU treaties contain a so-called no-bailout clause, which forbids the bloc or any member to "be liable for or assume the commitments of" another EU country. The treaties bar the European Central Bank from lending to countries or buying their debt directly. To get around these obstacles, European officials appear to be relying on vaguer parts of the treaties, or on novel interpretations."