I don't want to blame President Obama too much on this because everyone else gave in to.
Here's the scoop:
Scroll down to 7:20pm
G20 leaders have signalled that they are going to put more money into the International Monetary Fund. Although this money will not specifically be for a eurozone bailout, the move seems designed to convince the markets that money would be available to support a country like Italy if it were to run into trouble. David Cameron and George Osborne have backed the idea, and signalled that Britain is willing to increase its contribution to the IMF, although they also say that British taxpayers will not lose out. But so far no figures have emerged as to how much extra money could go into the IMF. According to one draft released to the media, the communique being issued tomorrow may just say: "States that wish to, can, from around the autumn of 2012, raise their bilateral participation in IMF resources."
This is totally unnecessary, but when a gun is being put to your head, one might give into the blackmail.
UNDER THE FOLD
The Eurozone could easily solve its problems by using the current powers of the ECB to backstop countries like Italy. Instead, the EU has resorted to blackmailing countries to take care of the problems it is unwilling to solve.
It began by going on a roadshow to China earlier this week:
"We all know China has a particular need to invest surpluses," he said at a news conference, referring to the country's foreign exchange reserves of $3.2 trillion - the world's biggest stockpile.
China has been a regular buyer of bonds issued by the EFSF and analysts estimate about a quarter of its reserves are held in euro-denominated assets.
And, China sent him on his way without a promise to jump in and buy in the expanded EFSM. Why? Because of Regling's logic. You have a surplus, please buy. Problem is, there are other surplus countries in the world, some of them are in the eurozone, and instead of committing their surpluses to the bailout, they are using toxic derivatives to stock the EFSM. Of course China rejected them.
Here's what the UKs Labour Party has to say about the deal (from the Guardian):
Labour has attacked Cameron and Osborne for planning to increase Britain's contribution to the IMF now. Ed Balls, the shadow chancellor, issued this statement.
We support an increase in the IMF subscription because of the vital role that the IMF plays in the global economy. But the IMF's job is to support individual countries with solvency crises, not to solve a structural problem caused by eurozone countries being unable to agree the necessary steps to support and maintain their monetary union.
That's why this summer we said that additional funding for the IMF should be held back until the details of the permanent eurozone bailout fund had been agreed.
The only way to properly ensure market confidence in the eurozone is for the European Central Bank, alongside the bailout fund, to be given the political support it needs to act as lender of last resort when liquidity problems arise. That is the logic of the monetary union these 17 countries signed up to.
So instead of obfuscating and hiding behind fudged words in communiqués, David Cameron and George Osborne should be clear about what's really going on. They must clarify, as we have consistently said, that there should be no IMF funding to plug the gap in the bailout fund and do the job the ECB should be doing.
This means that Labour is now in a position to join forces with Tory Eurosceptics, many of whom would oppose an increase in Britain's contribution to the IMF if they thought they money was being used to bail out the euro.
The Eurozone has a very large GDP. Its debt to GDP is SMALLER than the USAs. Smaller than Japan's. They are fully capable of dealing with countries like Greece that makeup only 2% of the zone. Labour UK is now in the odd position of agreeing with the eurosceptics. Why doesn't the core eurozone address its problems before asking for handouts?
I believe I know the answer. Until this week, everyone has been talking about the European banks that are at risk from exposure to Greek debt. This week, it's been revealed that these banks have been recapitalized and that there is little exposure to Greek debt. See here:
Regarding the potential consequences for French banks, Leonetti said "we are told that French banks exposure to Greek debt is between EUR8 billion and EUR10 billion."
Here's what has been happening with Greece. Greece is being used as a distraction to pass money through to the banks. Why are they extending and pretending the farce of Greece's solvency? The longer they extend, the more money they make for their banks. Otherwise, when Greece defaults, they have to make their banks whole directly, without using Greece as a pass through. You see it in Leonetti's quote. He's essentially saying, we can cut Greece off now. We have little exposure to them. (And, I might add, the question of CDS held by American banks on Greek debt becomes much less urgent than the general health of OTHER eurozone countries and the euro economy).
Why aren't they just making their banks whole directly you ask?
1. The IMF is providing 33% of the bailout
2. Eurozone countries without direct exposure to Greece are providing the majority of the bailout.
Some interesting stats here:
1. Germany has contributed 14 billion to Greece so far (all that money will be returned to Germany since the troika loans are considered primary bondholders to be paid back in full prior to private bondholders)
2. Greece pays 5.75% in interest, and has been now for 19 months
3. At the start of the crisis, German and French banks had 90 billion exposure to Greece.
4. Now, Germany and France have under 20 billion exposure.
It's a scam. Lots of blackmail and bluster to keep the money rolling in.
It's not the first time this has happened either.
Look at the craziness from 2008:
Anger mounted in Berlin on Wednesday, Sept 17, after it emerged that German state development bank KfW transferred 300 million euros ($427 million) by mistake to Lehman Brothers hours before the US investment bank folded.
How were these German banks made whole for their idiotic decisions?
The Fed's Maiden Lane project used AIG as a pass through to send money to cover the German banks for their losses. $30 billion from US taxpayers.
This has been the game all along.
Right now, Germans are angry with the proposed Greek referendum. This is an odd situation. Germans are rightly angry with having to use taxpayer money on Greece. But now Germans are angry for possibly NOT having to use taxpayer money on Greece. These are totally contradictory statements. It must mean that people are generally cognizant of the fact that Greece is being used as a pass through to recapitalize banks, because otherwise, the best response to Greece is a sincere, "Good luck to you, my friends."
Some analysts have called Greece's referendum a form of blackmail on Europe. It is. Greeks can't take any more austerity. They are blackmailing Europe with the threat of default. How/Why? Because they know that the eurozone would have to take up the awful crazy decision to toss it out of the euro (because Greece would not leave on its own volition). If a country can be tossed out of the euro it drives up the risk investment in all the debtor nations, and risks bank runs and economic collapses in the periphery. In short, the end of the euro.
But, what has slid under the rug is the way that the eurozone itself turns around and uses the specter of European collapse as blackmail to grab taxpayer cash from other nations, such as the USA.
Apparently, they only agreed in principle to backstop the IMF, but disagreed on exact amounts.