Wednesday, April 28, 2010

E-TARP, Europe Version: GS, JPM and RBS Say $794B Needed For Europe

Bloomberg reports that economists at Goldman Sachs Group Inc., JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc. now say that European policy makers may need to stump up as much as 600 billion euros ($794 billion) in aid or buy government bonds if they want to stamp out the region’s spreading fiscal crisis.

Imagine if all this money comes sloshing around, like it did in the U.S. causing stock markets to soar.

The Nuclear Option

Greek bonds are ineligible at money-market operations under current terms if Fitch Ratings and Moody’s Investors Service cut them to junk as well.

Jacques Cailloux, chief European economist at Royal Bank of Scotland Group Plc., says that the
“nuclear option” of the ECB purchasing government bonds is also attracting attention among economists. The ECB is prohibited from buying assets from authorities, but it can do it on the secondary market.

“We need 300 billion euros of purchases and then the problem goes away overnight,” said James Nixon, co-chief European economist at Societe Generale SA.

‘Growing Risk of EuroZone Break-Up’

Jennifer McKeown, economist at Capital Economics Ltd. in London says there is even a “growing risk that the euro-zone breaks up” as indebted nations are forced to retrench and political tensions mount".

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