Over the weekend a report in the Italian paper La Stampa suggested that the IMF was ready to advance a 600 Billion euro loan to Italy at rate between 4% to 5% which will provide the country more than 18 months worth of financing away from the capital markets. Italy will need to rollover 300 Billion euro of sovereign debt in 2012 which at current market rates of 7% will likely prove unmanageable for it to service.
Although the IMF loan idea if it can implemented would provide temporary relief to the beleaguered EZ credit markets, it will not solve the long term financing problems facing the region. Ultimately the EZ will require much greater integration of its fiscal policies and an issuance of Eurobonds it is to stop the short running attacks against the weaker credits in the region. To that end, today's report in German newspaper Die Welt that Germany is mulling over the idea of joint bond issuance with the five other AAA credits in the monetary union is the first promising step in that direction.
Whether the early investor enthusiasm to week-end news will sustain itself through the European open remains to be seen. European session are notorious for filling the gaps left in the wake of the week-end announcements and a true measure of investor sentiment will come from the EZ credit markets especially those of Italy and Spain. If fixed income investors dismiss the latest policy proposals and continue to sell Italian bonds, the rally in risk FX will be very short lived.