New European Agreement Needs Reality Check

Here is the headline from an Associated Press story earlier this morning:

“US stocks rise after new European budgetary pact

U.S. stock indexes rose in early trading Friday after 26 European nations agreed to consider tying their economies together more closely in hopes of preventing another debt crisis.”

Here is a reality check:

1. This agreement has to be ratified by each country before they have anything.
2. A closer fiscal union (with sanctions) means each country will have to give up its sovereignty to whom (Germany, The Central Bank, or?)
3. Based on their current financial situation, who will lend them the money at an interest rate they could afford with the Euro zone sliding into recession.
4. They need $3 trillion or more not the less than one trillion they hope to raise over the next three years.
5. Their Sovereign Credit ratings are likely to be downgraded soon by S&P resulting in even higher interest rates.
6. Their banks have not been recapitalized (unlike U.S. banks) and consequently have leverage ratios three times higher than U.S. banks.

Net: This new credit line on top of their old credit lines doesn’t make sense. But, using hopium might get them a few yards down the road to an even bigger crisis. And no, the IMF (International Monetary Fund) will not bail them out either. They do not have the money and to get it, they would have to get an appropriations bill through our congress as we would be liable for about 27% of the total funds raised.

Wait. I wonder, could Bernanke just give them the money with a couple of keystrokes with out telling us?