However, given the magnitude of the sovereign debt crisis in these economies, with the truly extraordinary liquidity crunch faced by these economies, the EU response has been limited. The graphics here show the amounts of bonds getting due for repayment in each of the PIIGS economies.
Except, for Ireland and Portugal, the amounts are huge for the others, especially the two big economies of Italy and Spain. And the European Financial Stability Fund (EFSF) clearly does not have the buffer to meet this kind of liquidity demand if the need arises. In fact, in all the PIIGS economies, government bonds worth 795 bn Euros come for repayment by end-2013, whereas, the EFSF will be able to cover just 440 bn Euros.
As the graphic nicely illustrates, the real challenge for Europe will be if and when Italy gets priced out of the markets. If that happens, that will be the ultimate test of Europe's (and German's) commitment to a single currency. Given the massive capital infusions that would then be required, Eurozone will fall apart without the liquidity support.
No comments:
Post a Comment