So $1T bought us... only 400 points on the Dow index. An indication of the current sad state of affairs. In addition, by offering to do QE it lost the ECB most of its credibility, overnight.
The conditions for accessing the bailout funds are strict and will require significant tightening. Spain has unemployment over 20%. The government tightening expenses does not increase employment, certainly not initially. In fact, GDP will be reduced, tax revenue drops, and chances are deficits as percentage of GDP increase. How on Earth they will make it without devaluing the currency (since that is the Euro) is a huge enigma.
David Rosenberg today states that if Europe were to revert to the 3% deficit ratios (which are required by the Maastricht criteria), this will reduced European GDP by 1% per year and it will be particularly tough on the PIIGS countries. The numbers for them are really scary:
- Ireland: -4% GDP, annually
- Greece: -3.5% GDP, annually
- Spain: -2.8% GDP, annually
- Portugal: -2.2% GDP, annually
- Italy: -0.8% GDP, annually
That is "recession to perpetuity".
And it's not only the PIIGs:
- France: -1.1% GDP, annually
- Belgium: -1.0% GDP, annually
- Netherlands: -0.8% GDP, annually
Those are reductions every single year for the next three years.
- Greece is the same canary in the coal mine that Thailand was in 1997, and that New Centure was in 2007. The risks are still high that it spreads to Portugal, Spain, Italy, even the U.K.
- The uncertainty is much wider that it was before.
- More downside on the short term