IMF Loan Target Not Reached
Yesterday the leaders of the euro area were confronted with another predictable development: The UK is not going to pay up for its share of the bilateral IMF loan program that is supposed to add to the bailout funding for the euro area by providing 'monetization through the back door'. Maybe the ersatz Napoleon and Mrs. Merkel should after all have given David Cameron his opt-out from their planned decimation of financial markets via the useless and economically nonsensical Tobin tax?
You can't very well expect the UK to cough up €30 billion after you basically told it to bugger off unless it agreed to let the diktats of the Brussels eurocracy determine the future of its all-important financial industry.
This is a bit like your neighbor asking you if he can borrow your car for 10 minutes, and right after you tell him that he can go to hell you say, 'oh by the way, can you quickly lend my ten grand?'
It appears therefore that the amount that will be forked over to the IMF will fall short of some €50 billion all in all.
As Reuters reports:
"Euro zone ministers agreed on Monday to boost IMF resources by 150 billion euros to ward off the debt crisis and won support for more money from EU allies, but it was unclear if the bloc would reach its 200 billion euro target after Britain bowed out.
Following a three-hour conference call, European Union finance ministers said currency zone outsiders the Czech Republic, Denmark, Poland and Sweden would also grant loans to the International Monetary Fund to help save the 17-nation zone.
But the EU said those lenders must first win parliamentary approval, while Britain made it clear it would not participate in the plan.
That leaves the euro zone more reliant than ever on major economies such China and on Russia, which has shown willingness to lend more to the IMF. The United States for its part is concerned about the lender's exposure to the euro zone.
Ministers had set an informal deadline of Monday to arrive at the 200 billion figure, which was agreed by EU leaders at a summit on December 8-9. and urged other nations to take part.
"Euro area member states will provide 150 billion euros of additional resources through bilateral loans to the fund's general resources account," the EU finance ministers said in a joint statement after their call.
"The EU would welcome G-20 members and other financially strong IMF members to support the efforts to safeguard global financial stability by contributing to the increase in IMF resources," the statement said.
British Treasury sources said Britain had decided not to contribute to an increase IMF resources. "We were clear that we would not be making a contribution," one Treasury source said, while another added that there was "no agreement on the 200 billion" euro funding boost."
Needless to say, neither €150 billion nor € 200 billion will make any difference whatsoever if the rise in Italy's bond yields continues. It should be noted here that in a rare positive development, Italy's 2 year yield now trades significantly below its 10 year yield (the latter however is once again approaching the 7% level – alas, this may have to do with a change in the benchmark bond to a slightly less liquid issue). The return to a positively sloped yield curve indicates that for now, the worst of the panic is over. There has been some speculation in the markets that several euro area banks have been buying the short end of the curve in Italy and Spain in order to deposit the securities with the ECB in this week's upcoming first new LTRO (long term refinancing operation). This could not be independently confirmed, but someoneclearly has been buying.
Italy's 2 year note yield has declined noticeably over the past few weeks – click chart for better resolution.
Italy's 10 year yield by contrast remains quite elevated at close to 7%. Alas, at least the 'curve inversion alarm' is for now gone. Note that the 10 year benchmark was recently changed, so there is a certain degree of discontinuity in this chart. The older benchmark issue has seen a bigger decline in yield – click chart for better resolution.
Source: Acting Man
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