Three trillion euros short of a picnic


craze for “ring-fencing” troublesome entities has hit Europe. Thanks to Sir John Vickers, we now have some readymade jargon for measures that sound like solutions, but don’t mean much in practice.

And we were treated to a flurry of such nonsense over the weekend with headlines hailing the arrival of a rescue package worth trillions – trillions! – of euros. The good news is that this mountain of cash is going to be deployed to “firewall” the region’s basket-case economies, somehow.

The bad news is that this is hardly an innovative new strategy. Essentially, it involves using lots of money to borrow more money and then throw it all into a big hole of debt. That means new bailouts for banks and new bailout guarantees for shaky sovereigns.

The basic idea is to make “better use” of the €780bn that Eurozone states have already committed to the region’s bailout fund by leveraging it to the tune of trillions – as much as €3 trillion (£2.6 trillion), according to some City estimates. For comparison’s sake, the UK economy is worth about £1.5 trillion.

It is, of course, good that Eurozone leaders are finally confronting the size of the problem. But it has little bearing on their ability to solve it.

Despite the excitement, the region’s ministers have yet to talk numbers or details and they are miles from getting the parliamentary votes necessary to approve all of this. Eurozone parliaments have yet to even ratify the 21 July agreement to let the bailout fund lend out more of its capital, let alone leverage it.

The fact is, words are cheap. Trillion-euro bailouts aren’t.