EU Debt Deal Reached on Wednesday October 27 2011 - Austerity measures for sustained Recovery

All service is the same with god,

With God, whose puppets, best and worst,

Are e: there is no last nor first.

R . Browning, Pippa Passes

The EU (European Union) has finally reached a debt deal that will see most of the major EU nations including Greece, being helped by a boost to the  EFSF (European Financial Stability Facility) from EU$440 billion to EU$1 trillion as reported by Reuters in the article “Euro deal leaves much to do on rescue fund, Greek debt”, published Thursday October 27 2011 3:44PM EDT by Luke Baker and Julien Toyer, Reuters.

Which to my politically sanitized ears, initially sounded like an European Version of Jamaica’s FINSAC (Financial Sector Adjustment Company) and JDX (Jamaica Debt Exchange) rolled into one as stated in the article “Bare-bones EU debt deal news enough for buyers”, published Wednesday October 26, 2011 7:23pm EDT By Chuck Mikolajczak, Reuters.

Details, however, are beginning to flesh out today, Thursday October 27^th 2011AD. This fund, aptly named the EFSF (European Financial Stability Facility), was eventually boosted to EU$1 trillion (US$1.4 trillion) and includes conditionality’s such as:

1.      EU Bloc countries recapitalizing their Banks

2.      Banks and large holder of Greek Government Bonds agreeing to take a 50% profit cut on their Bonds

However, the EFSF is financed by EU Bloc Bonds as opposed to individual countries, so this is essentially borrowing to pay off Debts that Banks among the PIIGS (Portugal, Italy, Ireland Spain and Germany) and Greece were exposed. This New Deal, as I like to call it, reduced the Greek Debt by some EU$100 billion, a reduction of the ratio of Debt to GDP (Gross Domestic Product) to 120% from a previous high of 160%.

Sustainable Debt?

Greek Prime Minister George Papandreou after the Brussels Meeting on Wednesday October 26, 2011 seems to think, quote:  “The debt is absolutely sustainable now. Greece can settle its accounts from the past now, once and for all.”

Naturally, the stock markets are happy, as the plan involves the banks doing something they should have been doing from a long time ago: making money the old fashioned way via Loans and borrowing instead of profits riding on Government Paper, such as those from the Greek Economy, which was set to default.

This Greek bailout, by the way, sounds an awful lot like our JDX (Jamaica Debt Exchange) , a personal opinion of mine as well as that of Economist Keith Collister as stated in the article “Greek debt crisis solution increasingly resembles Jamaica Debt Exchange”, published Sunday, July 24, 2011 BY KEITH COLLISTER, The Jamaica Observer .

UK Guardian commentator Mark Weisbrot Co-Director of the Center for Economic and Policy Research , in Washington, DC , even drew for the actions of the Jamaican Government and their approach in using the JDX connection and even suggested the very same thing with caveats as recorded in the article “Jamaica's crippling debt crisis must serve as a warning to Greece”, published Friday 22 July 2011 18.32 BST by Mark Weisbrot, The UK Guardian.

This time around, Minister of Finance Senator Audley Shaw deserves all the credit, as he had suggested this very same idea at an Interview at Bloomberg Headquarters in New York on Tuesday September 27^th 2011AD as noted in the article “Greece should pattern Jamaica Debt Exchange - Finance Minister”, published Wednesday September 28,2011 7:20pm, RJR News Online.

As usual, there is more to this simple scaling up of the Fund than meets the eye, as noted by equity strategist at Credit Swisse in Sydney, Damien Boey, quote: “While the headlines look good, the devil is in the details. We don't actually know how they are planning to increase the bail-out fund size from 440 billion euros to a trillion. On top of that, there are some questions as to whether one trillion euros in itself is enough.”

So where the funds are to come from are still unanswered concerns. Ditto too, if EU$1 trillion is enough, a figure that mirrors the bail-out figure of US$1 trillion borrowed from The People’s Republic of China to bail out the US Economy. 

So most likely, the EU Bloc may be running the People’s Republic of China to borrow more money. Like the US has done. No doubt the People’s Republic of China President Hu Jintao will be eager to lend, as the stability of the European Union, their second Largest customer, is of greatest importance.

The long term solution?

Simon Henry, Royal Dutch Shell Chief Financial Officer, put it bluntly, quote: “Europe's macroeconomic position can only recover and the sovereign debt crisis can only be addressed through underlying economic growth. We do not see the European Union creating the conditions for that, in fact quite the opposite.” Productivity in the Private Sector.

Hopefully the actions of the EU can be achieved and they will follow through with Austerity Measures as per my blog article entitled “EU, USA and the Second Recession - Economist Dennis Chung's Andromeda and The Long Night”. This before Peak Oil is scheduled to occur in 2015AD as stated in my blog article entitled “Alternative Energy and the Caribbean - Peak Oil in 2015 and The Day After Tomorrow”.