Stock markets around the world exploded upward on the word that the EU has come to an agreement of a aid package to help EU countries that are having borrowing difficulties. The package will include $560 billion in new loan guarantees, $76 billion increase in an existing lending facility, and $321 billion from the IMF. The ECB has also reversed its talk and is now willing to buy government and corporate debt to provide the market with liquidity.
This is a big package and the reaction is understandable, but there are many question of how this will work and who may get the money. That, of course, does not matter. The market got a strong jolt from EU finance ministers and the markets are off to the races. You could call this the EU TARP program for risky credit countries.
Greece will need to take funds this weeks since it has a multi-billion dollar bond issue due next weeks. Greece may actual get $25 billion by Friday to help it through the short-run.
It is less clear what will be the reaction of the market in the longer-run since it is uncertain who may get the help beyond Greece, how the money will be used, when it will be used, what will be the strings attached and how the money will be forthcoming from the more credit-worthy EU members. But those issues will be pushed into the future.
This is a big package and the reaction is understandable, but there are many question of how this will work and who may get the money. That, of course, does not matter. The market got a strong jolt from EU finance ministers and the markets are off to the races. You could call this the EU TARP program for risky credit countries.
Greece will need to take funds this weeks since it has a multi-billion dollar bond issue due next weeks. Greece may actual get $25 billion by Friday to help it through the short-run.
It is less clear what will be the reaction of the market in the longer-run since it is uncertain who may get the help beyond Greece, how the money will be used, when it will be used, what will be the strings attached and how the money will be forthcoming from the more credit-worthy EU members. But those issues will be pushed into the future.
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