Finance and Economics；The euro zone's rescue fund; Funny money, fuzzy maths;

Europeans often simplyadd the two numbers together, implying there is now a vast 1.4 trillion dollar stash.Not so. Look behind the fat figures and you find a lot of fuzzy maths andwishful thinking—just as worsening news in Spain brings talk of that countryneeding a rescue (see article).

Start with the IMF. Assuming countries make good ontheir pledges, the money itself is real. The biggest collectivecontribution will come from the euro-zone countries, which have promised tolend the fund 200 billion dollar between them. Japan is the biggest single donor, with a 60billion dollar pledge motivated partly by a desire not to be eclipsed by China, partlyby fears about its own economic vulnerability. Big emerging economies, such as China, Russiaand Brazil,agreed to chip in. Their contribution, and that of others such as Britain, will be contingent on reforms to thefund's governance, which reduce Europe's cloutand increase that of emerging economies. (America, notably, did notcontribute.)

Barring a big fight over its governance, the fund should be flushersoon. But no one wants to write a blank cheque forthe rich euro zone. Canada(which itself did not contribute) called for a double lock: future IMF lendingto the euro zone would need to be approved by a vote among non-Europeanmembers. That probably will not happen, but the fund, at best, will be aminority contributor to future rescues.

So the big bucks will have to come from Europe'sown rescue funds. And they are scantier than they seem. Both the EFSF (theexisting rescue facility) and the ESM (a new permanent fund) need to raiseresources by issuing debt. The EFSF backs its bonds withguarantees from the dwindling number of AAA-rated governments; the ESM willhave some paid-in capital. But both could find it hard to raise the large sumsthat might be required for, say, a swift bank recapitalisation in Spain.

So speculation is growing that the funds would not bother withhard cash. One idea is for Spainto have a system-wide asset-protection scheme, where the banks' toxic assetswould be insured by euro-zone guarantees. Another is for the rescue funds toissue bonds to Spain'sown bank-rescue fund, just as the EFSF gave Greek bondholders a bond instead ofcash as part of that country's debt restructuring.

Another problem is that both the IMF and ESM are considered“preferred creditors”, which means any borrowing from them is first in line forrepayment. If rescue money is sent to the Spanish government to prop up itsbanks, those same banks' holdings of government bonds may be worth less. A bigrescue could actually end up reducing confidence. The newly thickened firewallis less solid than it appears.