The EFSF: a jargon-free explainer

'As the EU’s second-poorest country and a late entrant to the union, state politicians were reluctant to stump up more cash for the fund, which might eventually back a bailout of wealthier countries such as Greece'

I bet this lot thought the funds would be flowing in the opposite direction .

Problem of being late . .

Is there something wrong with the first chart, or otherwise the meaning of "amended" and "original" does not seem to make sense?

William

Good spot, the colours are the wrong way round! The larger (dark red) bars represent the amended EFSF. We've fixed it. Thanks for letting us know

This inadequate sticking plaster wont be enough.....but the real question is ..what caused the current situation...and what is being dont to stop it continuing?

FACTS?!

You're have a Giraffe.

"Slovakia’s delay in passing the EFSF bill was down to divisions about whether the country should contribute more to the facility."

Nope, not even close.

It is true to say that there was some discussion on this point, but the main problem that caused the biggest delay was that the Slovakian government of the day was on its last legs, and tied the vote on the ESFS to a vote of confidence in the government. Which the government lost, of course, thereby delaying the bill.

Jesus, the level of accurate reporting on all things Euro has always been bad in the UK, since we got kicked out of the ERM.

The scary thing is that so many people read the horsecack in the UK press and then take it at face value.

The above is correct insofar as it goes, but does not address the real problems. The current position is this. Greece will go bust soon and three things are needed to stop financial meltdown.

First, the proportion of the Greek losses to be accepted by the private sector and by the eurozone countries (whether individually or through a central fund such as the EFSF) needs to be agreed by Europe’s leaders and the banks (who have so far agreed a 20% haircut).

Secondly, the eurozone banks need to be recapitalised to protect them against the bankruptcy of Greece and the possible bankruptcy of Italy, Spain and others. This is estimated as somewhere between €350 billion and €2 trillion (no-one really knows).

And thirdly the EFSF needs to be increased to €2 trillion+ (again, no-one really knows the true amount) just to cater for the possible effects of further bankruptcies (without taking account of the bank recapitalisation referred to above). It could be argued that this is double-counting, but it is far from clear that that is the case, since even with the banks recapitalised there is no diminution in the risk of state bankruptcies.

France wants everything to be done through central funds, either eurozone funds, but preferably the IMF which would mean that wider Europe and the US would take part of the pain. The reason they don’t want to be obliged as a country is that they would get downgraded. What is more, the French actually deny that their banks need any recapitalisation. The Germans want to recapitalise the banks, especially as Deutsche Bank is at risk, but they are worried about the size of the figures and the fact that they might also get downgraded; more importantly they have a huge political problem with the reluctance of the German people to commit any further funds. The US is not likely to agree a huge increase in commitments to the IMF and the UK government would probably veto it. Add to all of this the fact that, as noted in the article above, there are only 6 AAA rated eurozone states who can give guarantees, the amount of actual money to be provided is simply vast. Germany knows that it will have to provide the lion’s share. The politicians are nowhere in agreeing any of these, they are actively engaged in double-counting because they have lost sight of what each fund is for, and they are keeping very quiet on whether Greece will get its next tranche of €8 billion which is seen as money down the drain. In the meantime the debts of the eurozone countries go up each day, growth has stalled and the bankruptcy of Greece draws ever closer. Fortunately the markets are optimistic and all you stockpickers are daily encouraged to “pick up bargains”.

It's very hard to predict exactly what is going to happen and exactly when but it does seem certain that what ever does happen the effects will be very negative and massive!

I get the feeling that economically we are all stood on a dry beach, the tide having completely vanished but the tidal wave is about to come sweeping back in!

Drake

"The above is correct insofar as it goes, but does not address the real problems."

I addressed a single issue raise in the above article.

If you want to talk about the wider issues, go ahead.

Rufus Dogg - that's a little sollipsistic if I may say so. My comments were about the article, not your contribution.

Can't resist a spot of mediation. The confusion would have been avoided if Drake had originally put "the article" and not "the above" at the start of his post. On the other hand Rufus Dogg should perhaps have realised that such a lengthy and wide-ranging post could not be related closely to his narrowly-specific post. So I hope that they can kiss and make up on this basis (and not attack the mediator!).

How long before we give in to pressure from Europe (as we always do) and stump up a 100 billion or two ?

So all the eurozone countries are deep in debt - to whom? China?

Steven Wilson

The countries being helped out by the EFSF are in debt to the bond holders. The main bond holders are banks, pension funds, central banks and sovereign wealth funds. Most of these bond holders are in the eurozone.

Sounds like a hungry dog eating its own tail

seahound - that's the best description I've heard yet. Thanks for the laugh