The Corner

Does the Fantasy Bazooka have an Ammunition Problem?

If this report is accurate the builders of the would-be euro-bazooka may be finding it a touch difficult to get hold of ammo:

The European Financial Stability Facility (EFSF) [the bailout fund] last week announced it had successfully sold a €3bn 10-year bond in support of Ireland. However, The Sunday Telegraph can reveal that target was only met after the EFSF resorted to buying up several hundred million euros worth of the bonds.

Sources said the EFSF had spent more than € 100m buying up its own bonds to help it achieve its funding target after the banks leading the deal were only able to find about €2.7bn of outside demand for the debt. The revelation will be seen as a major failure and a worrying sign of future buyers strike after EFSF officials and their bankers had spent recent weeks travelling the world attempting to persuade key investors, including China’s national wealth fund and Japanese government funds, to buy its bonds.

Chinese and Japanese money was crucial to last year’s first bond sales by the EFSF, but they have since been dismayed by the eurozone’s failure to resolve the worsening debt crisis and alarmed at how fund has morphed from being a rescue facility for European banks into a potentially €1 trillion leveraged first-loss insurer for eurozone governments.

If the Eurozone leadership is really still set on the fanatic course of preserving the currency union ‘as is’ (and it appears to be), the only convincing bazooka is now the printing press of the European Central Bank, an idea that Merkel (both for understandable historical reasons and for fear of further enraging the German taxpayer) and the Bundesbank continue to resist.

Rock meet hard place, yet again.

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