James Saft is a Reuters columnist. The opinions expressed are his own.
The early returns on the euro rescue are as straightforward as the plan was vague: it probably isn’t going to work.Two numbers tell the tale: the 177 basis points over German debt the supposedly AAA-rated euro rescue fund was forced to pay to borrow on Monday; and 6.67 percent, the 14-year record amount Italy had to pony up to borrow for 10 years.
Neither of those numbers fit in well with the plan announced last week to recapitalize banks, bail out Greece, erect a firewall around the larger weak economies and produce credible plans for fiscal and economic reform.
Put simply, these numbers are telling us that the market and debt investors do not believe the plan will work in its current form. And little wonder, it is now just days later and Greece’s government has fallen, Italy‘s Berlusconi is under siege and the much hoped-for support from outsiders like China has failed to materialize.
When the European Financial Stability Facility (EFSF) tried to sell 3 billion euros of 10-year debt Monday it only just managed to scrape up the cash and was forced to pay much more than it has in past. In some ways this is no surprise; the rescue plan was vague about crucial details of how the EFSF would be structured and employ leverage.
Hopes that China and other emerging powerhouses would step up and support the plan have so far gone exactly nowhere.