You probably read about it already; maybe you didn’t ...

Being proposed is a European Monetary Fund (EMF) -- similar to the International Monetary Fund -- that could step in and bail out Eurozone countries facing troubled fiscal situations.

Sound good?


EURUSD Weekly:


Maybe good enough to stem some of the euro’s fall ... in the very short term, but it’s certainly not an ideal solution to the difficulties pestering Eurozone members and global investors.

Most obviously, it could set a bad precedent. Maybe the term moral hazard comes to mind.

If the mother funders bail out Greece, can they just wring out their mops, kick their feet up and retire with some nice Bordeaux? Doubtful, because they’ll be called on to clean up after ... uhhhh ... Portugal? Spain? Italy? ...?

Maybe this is simply a gesture to help restore sentiment and confidence in the monetary system. Here is Italy’s President, Giorgio Napolitano, commenting on the whole situation: “There's an awareness that our common arsenal lacks the tools to prevent and efficiently control these crises when vulnerable countries are attacked.”

Until now the euro hasn’t been tested, the system hasn’t been pressured. Though still an outlying possibility, there are legitimate fears that a euro break-up could come from all this. Either way, they need something to keep the one-size-fits-all system together.

After all the scrubbing is done to restore fiscal disasters in the Zone, additional blemishes could, and likely will, be uncovered. Germany, an important member in deciding what measures must and can be taken to fix things, is currently playing nice. But their compassion and cooperation will be short-lived if solutions morph into real obstacles for the motherland.

Right now the Mother Funding idea is being met with mixed feelings. Some say, “No way! Can it now.” Others seem to think it’s aimed in the right direction.

A big argument addresses the acuity of an EMF mission – to help alleviate the fiscal basket cases and restore the common good. But some have pointed out that there are more important elements to be addressed that would go further in solidifying the common good. For instance, addressing the imbalances, getting surplus nations to consume ... rather than keep the pressure on debtor nations to fulfill this task.

As with many of the global actions taken and proposed during what I’ll dub the “Bailout Era,” the key, if public funding is deemed necessary, is to keep from restoring a system that can just as easily crumble as the one before it.

For grins, I’ve modified the Erik Nielsen’s quotable (as included above):

If the ill-planned common currency could be brought into existence to begin with, why can’t it come crashing down and be banished to take its place as monetary history?

John Ross Crooks III
Black Swan Capital
www.blackswantrading.com