European still faced potential crisis

The information of Ireland get €85 billion from the International Monetary Fund (IMF) has not eased the worried of European market. The investors worried about the outbreak of other countries in the Euro zone sovereign debt crisis. Portugal’s debt crisis just around the corner, Spain has also been named may be the next “bomb”, even Belgium and Italy are all in the blacklist. Suppressed by this, the Euro/US Dollar below 1.3100 marks, while someone think the euro will fall to 1.2000.

There was an article named Time to send the barber home on The Economist website has been written the European Ministers tried to soothe the wailing with two (actually, three) promises: first, they drew up an €85 billion ($130 billion) of loans for Ireland to try to quell the immediate crisis. Second, they quietly agreed to consider extending the three-year repayment period for Greece, which was bailed out in May, to match the more generous loan term for Ireland. Third, they issued a promise that, under a future mechanism to resolve debt crises, holders of European government bonds were not in danger of losing their investment any time soon.

Will all this assuage the cantankerous markets? Still in this article, Olli Rehn, the EU's economic-affairs commissioner, who said there should be a new set of bank stress-tests next year, not just in Ireland but across the EU. This is an admission that the last lot of European stress-tests were flawed, in turn casting doubt on the heath of the banking sector, in turn raising the prospect of more banks having to be recapitalized by taxpayers, in turn increasing the danger to public finances.

MR Rehn was adamant that senior bondholders of Irish banks due for restructuring would not have to take losses, an option that the Irish government had been considering. "There will be no haircut on senior debt, not to speak of sovereign debt,” declared Mr Rehn. Brian Cowen, the politically crippled Irish prime minister, explained that the EU would not agree to such a radical course because it could destabilise the European financial system. There was no “political or institutional support” for the idea, he said.

Another sign that all is not well is the hint by Didier Reynders, the finance minister of Belgium, which holds the EU's rotating presidency, that the successor to the EFSF would have to be bigger. He did not quite spell it out that way, but his comment that “we need to have the largest size possible...to be able to give an answer to the crisis”, backed by Mr Rehn, seems to confirm reports of behind-the-scenes pressure to increase the size of the bail-out fund—if not immediately, then at least when a permanent one is created in 2013.

http://www.economist.com/blogs/charlemagne/2010/11/euro-zone_crisis