Barely sixteen months after setting up a huge €440 billion European Financial Stability Facility to safeguard the future of the Euro, we are now being told that it will take nearly five times this figure to achieve the desired result.

The facility was set up originally to provide temporary financial assistance to members of the Euro-zone that fell into financial difficulty. It now looks set to become at least a semi-permanent structure and a major pillar of the Euro-zone’s economic structure for years if not decades to come.

George Osborne, the UK Chancellor, has given the Euro-zone six months to save itself and the rest of the world from a total financial meltdown.

David Cameron, the Prime Minister, has said that the Euro-zone should stop kicking the can down the road.

Christine Lagarde the managing director of the IMF has talked about ‘dark clouds over Europe’ and warned of the risk of a ‘collapse in global demand’.

The US treasury secretary, Timothy Geithner, has said "The threat of cascading default, bank runs and catastrophic risk must be taken off the table, otherwise it will undermine all other efforts, both within Europe and globally. Decisions as to how to conclusively address the region's problems cannot wait until the crisis gets more severe."

So the language is being used to convince the rest of us that the EFSF must be boosted to £1.7 trillion (€2 trillion).

Then we are told that it will be used to ‘ring-fence’ countries like Greece if they default.

The money will be found from Euro-zone members as well as IMF contributors (like the UK). But all these countries are already indebted and broke so they will be forced to borrow even more to fund the facility. The tax-payer goes onto an even bigger hook.

But Greece will default, and the money will not go to Greece. The money will go to the banks that Greece already owes money to (largely French banks). So the funds will be used to bail the banks out of their lending to bad creditors, does this sound familiar? Except in this case it is not individuals defaulting against which the banks are to be protected, but the defaulting of whole countries.

Image: Wikimedia Commons

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