The insurance option is apparently very much under consideration:
RTRS-MAIN IDEA FOR LEVERAGING EURO ZONE BAILOUT FUND IS TO USE IT TO GUARANTEE FIRST LOSSES ON NEW DEBT – EU OFFICIALS
RTRS-EFSF FUND COULD HAVE FLEXIBILITY TO ALTER THE SIZE OF GUARANTEES IT OFFERS ON AN AUCTION-BY-AUCTION BASIS
RTRS-DEGREE OF LEVERAGE WOULD NOT BE FIXED, BUT LIKELY TO VARY BETWEEN 3 AND 5 TIMES — EU OFFICIALS
Sounds like that proposal advanced by Allianz is continuing to gain traction.
If you’re wondering how far those guarantees might extend, we wrote last week about some of the details of Allianz’ monoline concept, which sketched out 40 per cent for Greece, Ireland and Portugal and 25 per cent for Italy and Spain. Although we note that the comments above refer to first losses being guaranteed — as opposed to the clever configurations in Allianz’ PowerPoint, which included the EFSF taking 40 per cent alongside bondholders taking 10 per cent or even bondholders taking the first 10 per cent before the guarantee kicks in (probably best to look at the image to understand how that works).
Not surprisingly, the idea raises plenty of questions. Allianz’ Paul Achleitner said last week that doubts about EU rules that ban sovereigns from directly guaranteeing each others’ debt had been addressed.
But there remain all the attendant questions of collateral — or lack thereof, and of how investors might view the correlation between EFSF’s exposures. Presumably, we can look forward to hearing more about those issues soon…
Related links:
A very European monoline – FT Alphaville
What’s an EFSF guarantee worth? FT Alphaville
The origins of the EFSF monoline plan – FT Alphaville