Just as elEconomista warned in 2010, the FMI is preparing an urgent bailout package for struggling economies in the EU such as Spain and Italy. Government of both nations would receive lines of credit worth 112 billion euros.
The IMF´s 'liquidity plan' is articulated in a three-step strategy designed to put an end to problems in Europe that are caused by Greece. First, the banks need to be recapitalized. Second, firewalls need to be set up in order to prevent the spread of contagion throughout other peripheral countries should Greece collapse. Third, soften the blow of the collapse through a structured failure process.
The pressure to flesh out this plan is increasing heading into the next G-20 summit that will happen in less than a month. Doubts prevail. There is nothing left to do to prevent the enmity of ratings companies and meet Brussels' capital demands. Yesterday S&P lowered ratings of eight major Spanish lenders, and Fitch lowered its ratings for all of them.
Meanwhile, European banking authorities (EBA) prepare a more credible stress test that analyzes sovereign debt, and in Spain's case they will struggle to comprehend the results.
Capital demands and exhaustive reform efforts are all for naught if a simultaneous cleanup of financial lenders is not promoted. The roadmap has three key features, but its development over time will be arduous. The leaders of the euro have some hard weeks ahead. The time that they have lost has widened and multiplied the risks.