The European Bailout Trip Through The Twilight Zone

From NPR's Planet Money, this morning.

(If hard-core libs like the NPR folks have figured out the math doesn't work, then it's gotta be problematic.)

December 3, 2010 - STEVE INSKEEP, host:

For a long time, people in the financial industry seemed to be following a don't ask, don't tell policy when it came to financial risks. Ireland is the latest country being forced to change that. Like its other European neighbors, it's been spending a lot of money it doesn't have. And it wound up in the situation that debt-ridden countries fear - unable to borrow, at least not at a reasonable rate.

This week, Europe agreed to lend Ireland the money that nobody else will. Alex Blumberg and Chana Joffe-Walt of our Planet Money team report that the money to bail out Ireland comes from a surprising place.

CHANA JOFFE-WALT: The bailout sounds very serious and very substantial.

Mr. SATYAJIT DAS (Financial risk consultant): The European Financial stability fund. This is a 750 billion euro, so it's pretty close to a trillion dollar facility.

ALEX BLUMBERG: Satyajit Das is an author and financial risk consultant. And he says two things. One, that trillion dollars, it's not all for Ireland. Two, that trillion dollars doesnt actually exist. In fact, the stabilization fund currently has no money in it at all.

JOFFE-WALT: The trillion dollars, its more aspirational - a trillion dollars that could be there, if needed.

BLUMBERG: If needed, the Stabilization Fund could borrow money and then lend that money to Ireland. And maybe in the future, other European countries that are having trouble borrowing, like Portugal and Spain.

JOFFE-WALT: But that's confusing, because if people are scared of loaning money to Ireland, Portugal and Spain, why would they loan money to a fund, whose sole function is to loan money to Ireland, Portugal and Spain?

BLUMBERG: Ah, because the fund is safer, it's backed by 14 different European countries who all guarantee your money back.

JOFFE-WALT: Wait. But don't those European countries include Spain and Portugal?

BLUMBERG: Well, yes. They do.

Mr. DAS: Portugal, who can't borrow is guaranteeing this. So you've got basically, people who are being lent to who can't pay you back, and the guarantors aren't solvent either. So exactly, what are you doing?


Does one get the sinking feeling that we'll be called upon to 'contribute' to this venture? Or that the Chinese and Indians will be ponying up money, and extracting interest in some interesting ways besides cash payments?

OS says it again. The Euro is not a currency. It is a ball and chain, shackled to the feet of every child in Europe.

Clarke and Daw, the Australian comedy team, sum it all up best.