Confidence in the euro fell further today as hedge funds bet 8 billion dollars against the euro.
With all PIGS nations (Portugal, Ireland, Greece and Spain) have severe debt issues investors felt even more uneasy at the credibility of these governments’ ability to take a strong stance.
Even though Ireland has large credibility at tackling this debt, this may well spell disaster at home with strike and protests. It has not needed a ‘bail out’ contingent. However when Greece sneezed the peripheral countries caught the cold and investors have put them in quarantine.
But what can Greece do?
1. Tackle spending and not accept a loan/bail out and hope the market settles
2. Take a loan from the European Investment Bank
3. Take loans from other eurozone members
4. Issue joint euro bonds with France and Germany underwriting them
5. Use the IMF
Any bail-out would need the support of the two largest economies, France and Germany, and this doesn’t seem forthcoming. They also wouldn’t be prepared to underwrite the joint euro bonds. Investors are hardly forthcoming to buy this sovereign debt and it seems Greece is between a rock and a hard place.
This leaves the door open for the IMF to step in. It has large credibility and would be able to transfer the funds immediately. It would also be the only body capable of enforcing the necessary strict and stringent conditions attached to the loan in order to shore-up the finances. Not only this, Greece would receive international recognition for their national statistics – statistics which have been massaged for years.
While France and Germany argue over the ‘no bail-out’ clause in the EU treaty and article 122 in the Lisbon treaty, the IMF could be the front-runner. The ECB could lose credibility as it would be viewed to be incapable of managing its own affairs but the investors in Greek bonds would signal their interest.
Giving up power to Washington could be hard to swallow but perhaps the IMF is the tough Tamiflu pill to take for the swine-flu the PIGS have.