Keith Fitz-Gerald: Why Europe's Latest Bailout Won't Work

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Money Morning Chief Investment Strategist Keith Fitz-Gerald appeared on Fox Business Network's Varney & Co. today (Wednesday). In case you missed it, here's what he had to say about the latest European bailout attempt.

The European Central Bank (ECB) probably thinks its latest $645 billion (489 billion euro) package will buy the markets some time, but it won't.

"It'll probably be good for the markets short-term but whether that's simply today or a year from now, we don't know," said Fitz-Gerald. "However, this is absolutely the wrong thing to do. Worse, because this package does absolutely nothing to address a single one of the underlying causes, I guarantee you we'll be back having this discussion a year from now…probably a whole lot sooner."

As basis for his argument, Fitz-Gerald points to the following three facts:

  1. Despite the fact that today's $638.5 billion (489 billion euros) injection accounts for a mere $252 billion (193 billion euros) of new money into the system. There are $386.5 billion (296 billion euros) in maturing loans already accounted for.
  2. There are $300 billion (230 billion euros) of bank bonds maturing in the first quarter of 2012 alone.
  3. Lenders have more than $783.5 billion (600 billion euros) in debt maturing in 2012 alone – 75% of which is unsecured according to the Bank of England. This is 35% more money that needs to be refinanced than in 2011.

Europe will continue to be a mess until either its ministers get serious, or it disintegrates.

Additionally Fitz-Gerald was asked about Research in Motion Ltd. (Nasdaq: RIMM), which has declined spectacularly in the past 12 months.

"I wouldn't touch it with a 10-foot pole," he said. "The only thing RIM has going for it is a large stream of cash flow from proprietary data streamed between local encrypted servers. But that's technology that can be swapped out as new, more secure information streams are being developed. And that's the world we live in – innovate of die. Either a company like RIM has to develop and innovative product and sustain it or risk being overtaken by some guy in his garage who comes up with the next best thing."

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  1. Gordan Finch | December 24, 2011

    Thanks Kieth,

    I agree and think your delay forcast is optomistic, but until the Euro is devalued any ECB delay will be much shorter than hoped for.

    It is impossible in my humble opinion to create delay much further than March, no amount of under the carpet bailouts will work now.

    And the only possibility of significant growth in Europe now, is if fuel duty and IVA was significantly reduced, this would have the effect of lighting a rocket under the rear end of Industry.

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