Financial Times
October 24, 2011
A big bazooka is needed. But instead eurozone leaders are likely to produce a cap gun that lacks a silver bullet to deal with the crisis, according to investors.
One of the biggest worries is that, in seeking a short-term fix to the problems of Italy and Greece, European leaders could be building up longer-term problems for eurozone government bond markets.
Some investors are nervous about proposals for Europe’s rescue vehicle, the European financial stability facility, to offer guarantees or first loss insurance on debt sold by Italy and Spain at auction or to set up a new fund to do the same.
“I don’t think anyone is thinking through the medium-term implications of any of these solutions,” says Sushil Wadhwani, head of the eponymous hedge fund and a former member of the Bank of England’s rate-setting monetary policy committee.
“What you don’t do is this halfway house where you offer this pathetic guarantee. It is ineffective and costly,” he says.
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