The European Financial Stability Facilty (EFSF) is now in the spotlight. The PBOC has jumped the gun and announced it will provide buying support for the bond issuance. The only problem is the EFSF isn't robust enough (yet) to produce backing coverage. The EU members need quick ratification of additional power for the facility. Amazingly, much of what is being proposed was rejected last December.

The idea that an emergency facility will become the Pan-European bond issuer is not a confidence builder for the Euro experiment. The latest reports show banks using emergency borrowing at an increased clip. The ECB continues to deal with penalty liquidity as the problem is clearly solvency. Bank solvency can be worked out but the sovereign issues will intensify during the process. The US equity market is over reacting to this process in our opinion. The bond mania will have to face the idea of a competing issuer soon. "Stability" can be excluded from the name for the foreseeable future.

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