Germany has imposed an outline for two solutions for the European recovery fund. The first is to make the fund work as insurance against new issues. Although such use, particularly if it is leveraged, could put France's credit rating at risk if the biggest peripheral countries do not grow after undergoing hard cutbacks.
The other options is to let the fund attract capital investments, mostly private and sovereign debt from emerging economies, to absorb 20% or 30% of the first losses. But what do investors really expect to get at this time? The solutions are not without their hazards. The most immediate danger resides in Italy, because the country is resisting fiscal discipline and their president has little credibility. Lacking an agreement from the EU, we are in the hands of the ECB.
