The ESM: Saviour, Super SIV or End of the Road?

August 31, 2012

Monetary union among economically and culturally heterogeneous countries, each with distinct fiscal policy at the national level, is the origin of Europe's problem.

-Andrew Bosomworth, managing director, PIMCO

  • So long as the fundamental issues about the future of the eurozone remain unsolved, the extra supply of ESM bonds will likely drive up the borrowing costs of its weaker stakeholders.
  • Without a cap on or exit clause from additional capital calls, the ESM could lead northern eurozone countries down a difficult and unsustainable path.
  • With doubts about the ESM's ability to sustainably lower the long-term borrowing costs of vulnerable eurozone countries, and with the ECB indicating it will intervene to keep Spain and Italy's short-term borrowing costs low, the credit curves of eurozone peripheral government bonds are set to remain steep.



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