EU to Dump a $Trillion Dollars into Eurozone

Markets are 3-5% higher around the globe, as the Europeans surprised traders with their ability to a) work cooperatively; b) write ginormous checks; 3) engage in quantitative easing.

To parahrase Ned Davis, “Give me a trillion euros, and I will throw you a hell of a party.”

Here’s the NYT:

“European leaders agreed early Monday to provide a huge rescue package of nearly $1 trillion to combat the debt crisis that has engulfed Europe, and global markets responded by reversing the steep declines of recent days.

In an extraordinary session that lasted into the early morning hours, finance ministers from the European Union agreed on a deal that would provide $560 billion in new loans and $76 billion under an existing lending program. Elena Salgado, the Spanish finance minister, who announced the deal, also said the International Monetary Fund was prepared to give up to $321 billion separately.

Officials were hoping the size of the program — a total of $957 billion — would signal a “shock and awe” commitment in the same vein as the $700 billion package the United States government provided to help its own ailing financial institutions in 2008.”

The bailout train continues.

Based upon the reaction in the US futures — the Dow is up 400 — traders were surprised by the swiftness of the European’s move.

When the US began its massive bailout plan in October 2008, markets had been falling for 10 months, and were down 20% from peaks. Ultimately, the liquidity added was rocket fuel to the markets, and after they fell a total of 55%, a 75% rally ensued over the next year.

Europe has now gone down the same path — but from a very different location in the market cycle. I would not expect the reaction to be identical, but one must be very cognizant of the impact a trillion dollars will have on markets.

We have seen this movie before.


E.U. Details $957 Billion Rescue Package
NYT, May 10, 2010

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