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The Non-Recourse EuroZone

We are told that fearful Europeans 'got it' in Washington. 

And we are supposed to believe some 'grand solution' is in the offing.

Alas ..... Practicalities - the dreaded reality - heavily discounts this outcome.

Three observations:

(1) Comparisons to 'TARP-like' solutions in the US are seriously simplistic. You cannot compare the centralized authority of the US Treasury &/or Federal Reserve to Europe's fractured political infrastructure.

(2) European leaders are laboring to pass the existing enhancement of the EFSF. Do we really believe further expansion wouldn't face more concerted opposition?

(3) The UK is joint equal largest shareholder in the EIB. It is inconceivable the UK government would risk its AAA rating to support something akin to so-called 'Liesman Plan.'

So .... One fundamental question: WHO takes the risk?

In the US it was the FOMC. And as Paulson himself admitted this largely happened because the Congress didn't understand that the Federal Reserve actually OWNED the downside of the all the assets it acquired.

Similarly, in the EuroZone, through whatever clever construct, the 'back-stop' would have to be the ECB. The ECB would have to take the 'non-recourse risk' out of the market.

Could it? Of course. 

Will it? Ask the yourself what the Bundesbank might say.