EuroTARP won’t be enough

It took only one day for the magic of “EuroTARP” to wear off with global stock traders. Apparently they quickly figured out that the massive “rescue package” (AKA Bailout Plan) might save Greece in the short term but probably won’t be enough to rescue the other failing EU economies. (story here)

Stock markets started with modest gains, but turned negative with Tokyo shares down 0.9 percent and markets elsewhere in Asia-Pacific down 1 percent , a far cry from a nearly 4 percent jump in Wall Street blue chips overnight.

The euro slipped 0.5 percent against the yen and traded 0.2 percent down from late U.S. trade against the dollar after it climbed as much as 3 percent on the rescue news.

“Even though one of the worst scenarios — a Greek default — has been avoided for now, in many ways solving the bigger problems have simply been postponed and new issues could emerge in places such as Portugal and Spain,” said Nagayuki Yamagishi, a strategist at Mitsubishi UFJ Morgan Stanley Securities.

In another sign of market caution, safe-haven U.S. Treasuries stabilised in Asian trade after Monday’s plunge.

Markets initially cheered the rescue plan as a sign that for the first time in the six months of a deepening debt crisis, European leaders appear to have got ahead of the curve with decisive action.

But the deal left many longer-term questions about whether Europe’s weakest economies can manage their debt and how the European Union can develop more coherent economic and fiscal policies to underpin the single currency.

With many nations saddled with record deficits after they pumped trillions of dollars into their economies during the global crisis, officials from Washington to Beijing applauded Europe’s efforts to keep the crisis contained within its bounds.

A related story (from the NY Times) explains how our dear comrade leader, an economic genius in his own vision, pushed Germany hard to “do something big.” Like, you know, go all in on spending your country’s future into the toilet – like we’re doing.

President Obama had just flown into Hampton, Va., Sunday morning to deliver a commencement address. But before he donned his silky academic robes, he was on the phone with Chancellor Angela Merkel of Germany, offering urgent advice — and some not so subtle prodding — that Europe needed to try something big.

Weeks of hesitant half-steps to address Greece’s debt problems had only worsened market worries about the euro, and were threatening the still-fragile economic recoveries in the United States and Asia. Now, Mr. Obama told Mrs. Merkel that the Europeans needed an overwhelming financial rescue to end speculation that the euro — and European unity — could crumble.

“He was trying to convey that he knew these were politically difficult steps that the leaders there had to take, that he had gone through them as well,” said one senior administration official familiar with the conversation. “And that, from his experience, trying to get out ahead as much as possible was the right way to go.”

That call was part of what a senior Treasury Department official called “one long conversation” with European leaders, who over an extraordinary weekend of late nights and early mornings overcame German resistance and agreed to a wholesale expansion of the bloc’s political and financial mission. Bending the rules, they backed the stability of all 16 countries that use the euro with loan guarantees adding up to nearly $1 trillion.

That’s right follow our lead because, as we all know so well, that’s really working great for us. Maybe after the elections we can send some of our geniuses like Chris Dodd over there to offer their expert advice. After all, they won’t have much to do anymore.



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