How Singaporeans will soon see the EU reported tomorrow!

Published October 20, 2011 LINKED HERE

A nightmare scenario for the EU

There's a high and rising risk of the EMU breaking up - an eventuality policymakers must take bold action to avoid

By PADHRAIC GARVEY

THE eurozone crisis has gripped world attention in the past couple of years, and inability to address the problems in a convincing manner has seen manageable issues within the Economic and Monetary Union (EMU) of the European Union become problems that have grown so large that they could pull the system apart.
As it is, the break-up risk remains elevated, and that risk has continued to increase since the crisis erupted in early 2008. Since then, three small issuers (Greece, Ireland and Portugal) have gone cap-in-hand to their EU partners and the International Monetary Fund (IMF), and more recently two large issuers (Italy and Spain) have had to ask for European Central Bank (ECB) support through purchases of their government bonds.
Too little, too late
Every time eurozone politicians have cobbled together a solution, it has been too little too late, and frustratingly has pushed the EMU system further into crisis. A number of things have been agreed. EU loans to Greece were a first important step. Then the European Financial Stability Facility (EFSF) was set up to help fund stressed issuers. However, in both cases the initial packages have had to be subsequently doubled in size in order to appease market demand for a more credible solution.





The column concludes as follows:

The loss of even one EMU member would be a nightmare. The consequences are unbounded, and we would venture into the absolute unknown which would see financial markets trade worst-case fears, potentially bringing down the global financial system for a period.

This in turn is why we think it will not happen. The only risk to our view is that if Greece itself decides to leave the union - in such a scenario, nothing can be done to prevent this from happening, and we would have to manage the consequences.

The writer is global head of developed debt and rates strategy at ING Bank